Unassociated Document

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IdJoxw6jHAoXK8akFP+lPGDX2ssZaW6aLvvOuxOjRxhYJKUxcJi1B8PTOI/+R3Tb rFHj5sQUKkG+tanoLx1D7w== 0001144204-06-052818.txt : 20061215 0001144204-06-052818.hdr.sgml : 20061215 20061215135149 ACCESSION NUMBER: 0001144204-06-052818 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20061212 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061215 DATE AS OF CHANGE: 20061215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USTELEMATICS INC CENTRAL INDEX KEY: 0001372175 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 203600207 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-52193 FILM NUMBER: 061279800 BUSINESS ADDRESS: STREET 1: 335 RICHERT ROAD CITY: WOOD DALE STATE: IL ZIP: 60191 BUSINESS PHONE: 630 595 0049 MAIL ADDRESS: STREET 1: 335 RICHERT ROAD CITY: WOOD DALE STATE: IL ZIP: 60191 8-K 1 v060325_8k.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities and Exchange Act of 1934

Date of Report (Date of earliest reported): December 12, 2006

USTelematics, Inc.

(Exact name of registrant as specified in charter)

Delaware	000-52193	20-3600207
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

335 Richert Drive, Wood Dale, Illinois	60191
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (630) 595-0049

Copies to:

Marc J. Ross, Esq.

Louis A. Brilleman, Esq.

Sichenzia Ross Friedman Ference LLP

1065 Avenue of the Americas

New York, New York 10018

Phone: (212) 930-9700

Fax: (212) 930-9725

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

/_/ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

/_/ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

/_/ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

/_/ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01 Entry into a Material Definitive Agreement

ITEM 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

ITEM 3.01 Unregistered Sales of Equity Securities

Debentures

On December 12, 2006 (the “Closing Date”), USTelematics, Inc. (the “Company”) entered into and consummated a securities purchase agreement with a group of accredited investors (the “Investors”) providing for the issuance to the Investors of the Company’s 9% Senior Secured Convertible Debentures in the principal amount of $3,565,000 (the “Debentures”). Interest is payable in cash or, at the option of the Company (after the effective date of the Registration Statement, as defined below), in registered shares of common stock of the Company (at a 20% discount to the average of the lowest 3 intra-day trading prices during the 20 trading days immediately prior to the interest payment due date). Upon an event of default, the interest rate of the Debentures will be increased to 18%. The Debentures mature two years from the date of issuance.

All amounts due under the Debentures may be converted at any time, in part or in whole, at the written election of the holder thereof, into shares of the Company’s common stock at a conversion price of $0.50. No conversions may take place if it would cause a holder of the Debentures to become the beneficial owner of more than 4.99% of the outstanding shares of common stock of the Company, which limitation is subject to waiver by an Investor upon 61 days prior written notice to the Company.

The Company has granted a security interest in all of its assets to secure its obligations under the Notes.

The Company also issued to the holders of the Debentures Class A Warrants to purchase 7,130,000 shares of the Company’s common stock at $0.55 per share and Class B Warrants to purchase 3,565,000 shares of Common Stock at $0.75 per share (collectively, with the Bonus Warrants, as defined below, the “Warrants”). All Warrants are exercisable for a period of five years.

Exchange Debentures

The Company also issued debentures (the “Exchange Debentures”) in the principal amount of approximately $1,597,000 in exchange for debentures issued to a group of investors (the “Bridge Investors”) on or after April 14, 2006 (the “Bridge Financing”). The Exchange Debentures are identical to the Debentures in all respects, except that the conversion price of the Exchange Debentures is $0.375.

The Company also issued to the Bridge Investors Class A Warrants to purchase 4,259,726 shares of the Company’s common stock and Class B Warrants to purchase 2,129,863 shares of Common Stock. In addition, they received five-year warrants (the “Bonus Warrants”) to purchase an aggregate of 1,064,932 shares of common stock of the Company at $.375 per share.

The Company has agreed to file a registration statement (the “Registration Statement”) for the registration of the shares issuable upon (i) conversion of the Debentures and the Exchange Debentures and (ii) exercise of the Warrants within 40 days after the Closing Date and cause it to be declared effective within 120 days after the Closing Date, assuming a full review of the Registration Statement by the Securities and Exchange Commission (the “Commission”), or within 90 days assuming no review. If the Registration Statement is not filed on time or not declared effective by the Commission on the earlier of (i) within 5 business days after the Commission states that there will be no review or that the Commission has no further comments, or (ii) upon the occurrence of other registration default related matters, the Company must pay liquidated damages of 2% per month or part thereof for any registration default up to a maximum of 30% in the aggregate of the purchase price paid. Such damages may be paid by the Company at its option in cash or in registered common stock valued at the lowest reported closing bid price of the common stock during the 20 trading days immediately before accrual of the obligation to make the payment

All securities were issued pursuant to an exemption from registration in reliance on Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and on the Investors’ representations that they are “accredited” as defined in Rule 501 under the Securities Act.

Axiom Capital Management, Inc. (“Axiom”) acted as exclusive placement in connection with the sale of the Debentures and the Warrants as well as in connection with the Bridge Financing. For its services, Axiom received a cash fee equal to 10% of the proceeds from the sale of the securities. In addition, it received warrants to purchase 1,113,000 shares of the Company’s common stock.

ITEM 9.01 Financial Statements and Exhibits

(a)	Financial statements of businesses acquired.

Not applicable.

(b)	Pro forma financial information.

Not applicable.

(c)

Exhibits

Exhibit Number		Description
4.1		Form of Secured Debenture
4.2		Form of Series A Warrant
4.3		Form of Series B Warrant
4.4		Form of Exchange Bonus Warrant
10.1		Securities Purchase Agreement
10.2		Collateral Agent Agreement
10.3		Registration Rights Agreement
10.4		Amended and Restated Security Agreement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	USTELEMATICS, INC.

Date: December 14, 2006	By:	/s/ Howard Leventhal
		Howard Leventhal
		President

EX-4.1 2 v060325_ex4-1.htm

Exhibit 4.1

Exhibit A

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT, AND THE SECURITIES INTO WHICH THESE SECURITIES ARE EXCHANGEABLE OR CONVERTIBLE WILL NOT BE, REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXCHANGE OR CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Debenture No. ______________

Principal Amount: $__________	Issue Date: December 7, 2006

Initial Conversion Price: $_________

SECURED DEBENTURE

FOR VALUE RECEIVED, USTELEMATICS, INC., a Delaware corporation (hereinafter called “Borrower”), hereby promises to pay to the person identified beldow (the “Holder”) or order, without demand, the principal amount described below (“Principal Amount”), with interest accruing at the compounded annual rate of nine percent (9%), on December 7, 2008 (the “Maturity Date”).

Holder:


Principal Amount:

This Debenture has been entered into pursuant to the terms of a Securities Purchase Agreement between the Borrower and the Holder, dated of even date herewith (the “Purchase Agreement”), and shall be governed by the terms of such Purchase Agreement. Unless otherwise separately defined herein, all capitalized terms used in this Debenture shall have the same meaning as is set forth in the Purchase Agreement. The following terms shall apply to this Debenture:

ARTICLE I

GENERAL PROVISIONS

1.1 Prepayment. The Debenture shall be payable in full on the Maturity Date; and may not be prepaid without the consent of the Holder.

1.2 Interest Rate. Simple interest payable on this Debenture shall accrue from the date of this Debenture at the annual rate of nine percent (9%) and be payable quarterly on the last day of May, August, November and February each year, with all accrued, unpaid interest due and payable on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable. Interest shall be paid in cash or, at the option of the Borrower post an effective registration, in registered Common Stock of the Borrower (at a 20% discount to the average of the lowest 3 intra-day trading prices during the 20 trading days immediately prior to the interest payment due date). If an Event of Default (as defined below) occurs, whether or not such Event of Default is cured, the interest rate of this Debenture shall accrue from the Issue Date at the annual compounded rate of eighteen percent (18%).

1.3 Payment Grace Period. The Borrower shall have a five (5) business day grace period to pay any monetary amounts due under this Debenture.

1.4 Conversion. The Principal Amount of this Debenture and all accrued, unpaid interest thereon shall be convertible at any time before the Maturity Date, in part or in whole, at the written election of the Holder into fully paid and non-assessable shares of the $0.0001 par value Common Stock of the Borrower at the Conversion Price under the terms and upon the conditions describe in Section 4.25 of the Purchase Agreement. Before any adjustment required by the Purchase Agreement, the Purchased Debenture Conversion Price is $0.50 per share, and the Exchange Debenture Conversion Price is $0.375 per share. Upon delivery to Borrower of written notice that a Holder elects to convert some or all of this Debenture into Common Stock, Borrower shall deliver certificates representing the shares of Common Stock to be issued upon conversion within 3 business days of receipt on the Notice, and shall otherwise comply with the requirements of the Purchase Agreement applicable to conversion of the Debenture.

1.5 Maximum Conversion. The Holder shall not be entitled to convert on a Conversion Date that amount of the Debenture in connection with that number of Common Shares which would be in excess of the sum of (i) the number of Common Shares beneficially owned by the Holder and its affiliates on a Conversion Date, (ii) any Common Shares issuable in connection with the unconverted portion of the Debenture, and (iii) the number of Common Shares issuable upon the conversion of the Debenture with respect to which the determination of this provision is being made on a Conversion Date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the shares of outstanding Common Stock of the Borrower on such Conversion Date. For the purposes of the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate conversions of only 4.99% and aggregate conversion by the Holder may exceed 4.99%. The Holder shall have the authority and obligation to determine whether the restriction contained in this Section 2.3 will limit any conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Debentures are convertible shall be the responsibility and obligation of the Holder. The Holder may waive the conversion limitation described in this Section 2.3, in whole or in part, upon and effective after 61 days prior written notice to the Borrower to increase such percentage to up to 9.99%.

1.6 Merger, Sale of Assets, etc. If the Borrower at any time shall consolidate with or merge into or sell or convey all or substantially all its assets to any other corporation, this Debenture, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to convert the Debenture into such number and kind of shares or other securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance, upon or with respect to the securities subject to the conversion immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance.

1.7 Reclassification, etc. If the Borrower at any time shall, by reclassification or otherwise, change the Common Shares into the same or a different number of securities of any class or classes that may be issued or outstanding, this Debenture, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to convert into an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Shares immediately prior to such reclassification or other change.

1.8 Stock Splits, Combinations and Dividends. If the Common Shares are subdivided or combined into a greater or smaller number of Common Shares, or if a dividend is paid on the Common Shares in Common Shares, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of Common Shares outstanding immediately after such event bears to the total number of Common Shares outstanding immediately prior to such event. In addition the holder of this Debenture is entitled to certain non-dilution rights described in Section 4.25(d) of the Purchase Agreement.

ARTICLE II

EVENTS OF DEFAULT

The occurrence of any of the following events of default (“Event of Default”) shall, at the option of the Holder hereof, make all sums of principal and interest then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, upon demand, without presentment, or grace period, all of which hereby are expressly waived, except as set forth below:

2.1 Failure to Pay Principal or Interest, or to Deliver Shares. The Borrower fails to pay any installment of principal, interest or other sum due under this Debenture when due, or fails to timely deliver certificate representing share of Common Stock issuable upon conversion after receipt on notice of election to convert from the Holder, and such failure continues for a period of five (5) business days after the due date. The five (5) business day period described in this Section 2.1 is the same five (5) business day period described in Section 1.3 hereof.

2.2 Breach of Covenant. The Borrower breaches any material covenant or other term or condition of the Purchase Agreement or this Debenture in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Holder.

2.3 Breach of Representations and Warranties. Any material representation or warranty of the Borrower made herein, in the Purchase Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date made and a Closing Date.

2.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed.

2.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days.

2.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower and if instituted against Borrower are not dismissed within 45 days of initiation.

2.7 Listing Default. The occurrence of a Listing Default (as defined in Section 4.12(c) of the Purchase Agreement).

2.8 Cross Default. A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of a material event of default under any such other agreement which is not cured after any required notice and/or cure period.

ARTICLE III

SECURITY INTEREST

3.1 Security Interest/Waiver of Automatic Stay. This Debenture is secured by a security interest granted to the Collateral Agent for the benefit of the Holder pursuant to a Security Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Transaction Documents and any other agreement to which the Borrower and Holder are parties (collectively, “Loan Documents”) and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder. The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents if this waiver were not a part of this Debenture. The Borrower further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of this Debenture and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel.

ARTICLE IV

MISCELLANEOUS

4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Borrower to: USTelematics, Inc., 335 Richert Drive, Wood Dale, IL 60191, Attn: Howard Leventhal, CEO & President, telecopier: (312) 896-9235, with a copy by telecopier only to: Alan W. Peryam, LLC, 1120 Lincoln Street, Suite 1000, Denver, CO 80203, telecopier: (303) 866-0999, and (ii) if to the Holder, to the name, address and telecopy number set forth on the Signature Page of the Purchase Agreement

4.3 Amendment Provision. The term “Debenture” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

4.4 Assignability. This Debenture shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns.

4.5 Cost of Collection. If default is made in the payment of this Debenture, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.

4.6 Governing Law. This Debenture shall be governed by and construed in accordance with the laws of the State of New York. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.

4.7 Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

4.8 Redemption. This Debenture may not be redeemed or called without the consent of the Holder.

IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its name by an authorized officer as of the ____ day of December 2006.


	USTELEMATICS, INC.

	By:
		Howard Leventhal, CEO & President

WITNESS:

ELECTION TO CONVERT

(To be executed by the Holder in order to convert the Debenture)

The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Debenture issued by USTelematics, Inc. on ________ __, 2006 into Common Shares of USTelematics, Inc (the "Borrower") according to the conditions set forth in such Debenture, as of the date written below.

Date of Conversion: ___________________________________________________________________________________

Conversion Price: _____________________________________________________________________________________

Number of Shares To Be Delivered: _______________________________________________________________________

Signature: ___________________________________________________________________________________________

Print Name: __________________________________________________________________________________________

Address share are to be sent to: __________________________________________________________________________

___________________________________________________________________________________________________

The undersigned Holder of Debenture No. ___________, in the Principal Amount of $______________________, hereby elects to convert $___________ in principal amount of the Debenture and all accrued unpaid interest due thereon as of the date of election into Common Stock of the Company at the applicable Conversion Price.

Dated: ________________________________________

______________________________________________

Registered Name of Debenture Holder

By ____________________________________________

Authorized Representative

Signature Guaranteed by:

_____________________________________________

EX-4.2 3 v060325_ex4-2.htm

Exhibit 4.2

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT, AND THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE OR EXERCISABLE WILL NOT BE, REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OR EXERCISE OF THESE SECURITIES MAY NOT BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Series A

COMMON STOCK PURCHASE WARRANT

To Purchase Shares of $0.0001 Par Value Common Stock ("Common Stock") of

No. [WA-__] [ ] Shares

USTELEMATICS, INC.

THIS CERTIFIES that, for value received, the holder identified below (the “Holder”) is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof and on or prior to 5:00 p.m. New York City Time on the termination date shown below (the “Termination Date”), but not thereafter, to subscribe for and purchase from USTelematics, Inc., a Delaware corporation (the “Company”), the number of shares of Common Stock shown below (the “Warrant Shares”) at the Exercise Price stated below equal to (as adjusted from time to time pursuant to the terms hereof, the “Exercise Price”). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. This Warrant is being issued in connection with the issuance of the Company’s 9% Secured Convertible Debentures due December __, 2008 (the “Debentures”) pursuant to a Securities Purchase Agreement dated as of December 6, 2006, 2006 (the “Securities Purchase Agreement”), entered into between the Company and the Holder. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Securities Purchase Agreement.

Holder: ________________________________________________________________

Termination Date: ___________________________2011

Number of Warrant Shares: ___________________Shares

Exercise Price: $____ per share

Title of Warrant. Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with (a) the Assignment Form annexed hereto properly endorsed, and (b) any other documentation reasonably necessary to satisfy the Company that such transfer is in compliance with all applicable securities laws. The term “Holder” shall also refer to or any subsequent transferee of this Warrant.

Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant and payment of the Exercise Price as set forth herein, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue or otherwise specified herein).

3.	Exercise of Warrant.

(a)

The Holder may exercise this Warrant, in whole or in part, at any time and from time to time, by delivering (which may be by facsimile) to the offices of the Company or any transfer agent for the Common Stock this Warrant, together with a Notice of Exercise in the form annexed hereto specifying the number of Warrant Shares with respect to which this Warrant is being exercised, together with payment in cash to the Company of the Exercise Price therefor.

In the event that the Warrant is not exercised in full, the number of Warrant Shares shall be reduced by the number of such Warrant Shares for which this Warrant is exercised and/or surrendered, and the Company, if requested by Holder and at its expense, shall within three (3) Trading Days (as defined below) issue and deliver to the Holder a new Warrant of like tenor in the name of the Holder or as the Holder (upon payment by Holder of any applicable transfer taxes) may request, reflecting such adjusted Warrant Shares. Notwithstanding anything to the contrary set forth herein, upon exercise of any portion of this Warrant in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant to the Company unless such Holder is purchasing the full amount of Warrant Shares represented by this Warrant. The Holder and the Company shall maintain records showing the number of Warrant Shares so purchased hereunder and the dates of such purchases or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Warrant upon each such exercise. The Holder and any assignee, by acceptance of this Warrant or a new Warrant, acknowledge and agree that, by reason of the provisions of this Section, following exercise of any portion of this Warrant, the number of Warrant Shares which may be purchased upon exercise of this Warrant may be less than the number of Warrant Shares set forth on the face hereof.

Certificates for shares of Common Stock purchased hereunder shall be delivered to the Holder hereof within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. The Holder may withdraw its Notice of Exercise at any time if the Company fails to timely deliver the relevant certificates to the Holder as provided in this Agreement. A Notice of Exercise shall be deemed sent on the date of delivery if delivered before 5:00 p.m. New York Time on such date, or the day following such date if delivered after 5:00 p.m. New York Time; provided that the Company is only obligated to deliver Warrant Shares against delivery of the Exercise Price from the holder hereof and surrender of this Warrant (or appropriate affidavit and/or indemnity in lieu thereof).

In lieu of delivering physical certificates representing the Warrant Shares issuable upon conversion of this Warrant, provided the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Warrant Shares issuable upon exercise to the Holder, by crediting the account of the Holder's prime broker with DTC through its Deposit Withdrawal At Custodian (“DWAC”) system. The time periods for delivery described above shall apply to the electronic transmittals through the DWAC system. The Company agrees to coordinate with DTC to accomplish this objective.

(b)

The term “Trading Day” means (x) if the Common Stock is not listed on the New York or American Stock Exchange but sale prices of the Common Stock are reported on Nasdaq National Market or another automated quotation system, a day on which trading is reported on the principal automated quotation system on which sales of the Common Stock are reported, (y) if the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, a day on which there is trading on such stock exchange, or (z) if the foregoing provisions are inapplicable, a day on which quotations are reported by National Quotation Bureau Incorporated.

(c)	Cashless Exercise.

(i) If a Registration Statement (as defined in the Registration Rights Agreement) (“Registration Statement”) is effective and the Holder may sell its shares of Common Stock upon exercise hereof pursuant to the Registration Statement, this Warrant may be exercisable in whole or in part for cash only as set forth in Section 3 (a) and (b) above. If no such Registration Statement is available, payment upon exercise may be made at the option of the Holder either in cash, wire transfer or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Purchase Price or (x) by cashless exercise in accordance with Section (ii) below, or (y) by a combination of any of the foregoing methods, for the number of shares of Common Stock specified in such form (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein.

(ii) If the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Subscription Form in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

X=Y (A-B)

Where X= the number of shares of Common Stock to be issued to the holder

Y= the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

A= the average of the closing bid prices of the Common Stock for the five (5) Trading Days immediately prior to (but not including) the Exercise Date

B= Exercise Price (as adjusted to the date of such calculation)

For purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued.

No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of issuance of a fractional share upon any exercise hereunder, the Company will either round up to nearest whole number of shares or pay the cash value of that fractional share, which cash value shall be calculated on the basis of the average closing price of the Common Stock during the five (5) Trading Days immediately preceding the date of exercise.

Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder of this Warrant or in such name or names as may be directed by the Holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the Holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder hereof; and provided further, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance of any Warrant Certificates or any certificates for the Warrant Shares other than the issuance of a Warrant Certificate to the Holder in connection with the Holder’s surrender of a Warrant Certificate upon the exercise of all or less than all of the Warrants evidenced thereby.

6.	Closing of Books. The Company will at no time close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant.

No Rights as Shareholder until Exercise. Subject to Section 12 of this Warrant and the provisions of any other written agreement between the Company and the Holder, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Warrant Shares or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised as provided herein. However, at the time of the exercise of this Warrant pursuant to Section 3 hereof, the Warrant Shares so purchased hereunder shall be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been exercised.

Assignment and Transfer of Warrant. This Warrant may be assigned by the surrender of this Warrant and the Assignment Form annexed hereto duly executed at the office of the Company (or such other office or agency of the Company or its transfer agent as the Company may designate by notice in writing to the registered Holder hereof at the address of such Holder appearing on the books of the Company); provided, however, that this Warrant and the Warrant Shares may not be resold or otherwise transferred except (i) in a transaction registered under the Securities Act of 1933, as amended (the "Act"), or (ii) in a transaction pursuant to an exemption, if available, from registration under the Act and whereby, if reasonably requested by the Company, an opinion of counsel reasonably satisfactory to the Company is obtained by the Holder of this Warrant to the effect that the transaction is so exempt.

Loss, Theft, Destruction or Mutilation of Warrant; Exchange. The Company represents, warrants and covenants that (a) upon receipt by the Company of evidence and/or indemnity reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate or stock certificate representing the Warrant Shares, and in case of loss, theft or destruction, of indemnity reasonably satisfactory to it, and (b) upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of this Warrant or stock certificate, without any charge therefor. This Warrant is exchangeable at any time for an equal aggregate number of Warrants of different denominations, as requested by the holder surrendering the same, or in such denominations as may be requested by the Holder following determination of the Exercise Price. No service charge will be made for such registration or transfer, exchange or reissuance.

10.

Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

11.	Adjustments of Exercise Price and Number of Warrant Shares.

The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as set forth in this Section 11.

(a)

Share Issuance. Until the Termination Date, if the Company shall issue any Common Stock that is not an Exempt Issuances (as defined in the Securities Purchase Agreement), prior to the complete exercise of this Warrant for a consideration (a “Purchase Price”) less than the Exercise Price that would be in effect at the time of such issue, then, and thereafter successively upon each such issue, the Exercise Price shall be reduced to such other lower Purchase Price. For purposes of this adjustment, the issuance of any security or debt instrument of the Company carrying the right to convert such security or debt instrument into Common Stock or of any warrant, right or option to purchase Common Stock shall result in an adjustment to the Exercise Price upon the issuance of the above-described security, debt instrument, warrant, right, or option if such issuance is at a price lower than the Exercise Price in effect upon such issuance. The reduction of the Exercise Price described in this Section 11(a) is subject to the provisions of, and in addition to the other rights of the Holder described in, the Securities Purchase Agreement.

(b)

Adjustments for Subdivisions or Combinations of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the applicable Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Exercise Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(c)

No Impairment. The Company will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 11 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder hereof against impairment.

(d)

Corresponding Adjustment in Number of Warrant Shares. In the event of any adjustment in the number of Warrant Shares issuable hereunder upon exercise, the Exercise Price shall be inversely proportionately increased or decreased as the case may be, such that aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same. Similarly, in the event of any adjustment in the Exercise Price, the number of Warrant Shares issuable hereunder upon exercise shall be inversely proportionately increased or decreased as the case may be, such that aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same.

12.	Voluntary Adjustment by the Company. The Company may at its option, at any time during the term of this Warrant, reduce but not increase the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

13.

Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, the Company shall promptly mail to the Holder of this Warrant a notice setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares after such adjustment and setting forth the computation of such adjustment and a brief statement of the facts requiring such adjustment.

14.

Authorized Shares. The Company covenants that during the period the Warrant is outstanding and exercisable, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any and all purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law, regulation, or rule of any applicable market or exchange.

15.

Compliance with Securities Laws. (a) The Holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered (or if no exemption from registration exists), will have restrictions upon resale imposed by state and federal securities laws. Each certificate representing the Warrant Shares issued to the Holder upon exercise (if not registered, for resale or otherwise, or if no exemption from registration exists) will bear substantially the following legend:

(b )

Without limiting the Holder’s right to transfer, assign or otherwise convey the Warrant or Warrant Shares in compliance with all applicable securities laws, the Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of applicable federal and state securities laws.

16.	Miscellaneous.

(a)

Issue Date; Choice of Law; Venue; Jurisdiction. The provisions of this Warrant shall be construed and shall be given effect in all respects as if it had been issued and delivered by the Company on the date hereof. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant will be construed and enforced in accordance with and governed by the laws of the State of New York, except for matters arising under the Act, without reference to principles of conflicts of law. Each of the parties consents to the exclusive jurisdiction of the Federal and State Courts sitting in the County of New York in the State of New York in connection with any dispute arising under this Warrant and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens or venue, to the bringing of any such proceeding in such jurisdiction. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY.

(b)

Modification and Waiver. This Warrant and any provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. Notwithstanding the foregoing, the Holders of at least 85% of the outstanding Warrants of this series may written instrument delivered to the Company (which instrument may be in counterparts) change or waive compliance with any provision hereof, which change or waiver shall be binding upon all Holders of outstanding Warrants of this series even if not party to such written instrument. Any amendment effected in accordance with this paragraph shall be binding upon the Holder, each future holder of this Warrant and the Company. No waivers of, or exceptions to, any term, condition or provision of this Warrant, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

(c)

Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing by facsimile, mail or personal delivery and shall be effective upon actual receipt of such notice. The addresses for such communications shall be to the addresses as shown on the books of the Company or to the Company at the address set forth in the Purchase Agreement. A party may from time to time change the address to which notices to it are to be delivered or mailed hereunder by notice in accordance with the provisions of this Section 16(c).

(d)

Severability. Whenever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Warrant in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Warrant shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

(e)

Specific Enforcement. The Company and the Holder acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Warrant were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Warrant and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which either of them may be entitled by law or equity.

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized.

Dated: December 7, 2006

USTELEMATICS, INC.

By:

Name: Howard E. Leventhal

Title: Chief Executive Officer, President

ATTEST:

Print Name:

Exhibit A

FORM OF SUBSCRIPTION

(to be signed only on exercise of Warrant)

TO: US Telematics, Inc.

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

___ ________ shares of the Common Stock covered by such Warrant; or

___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes):

___ $__________ in lawful money of the United States; and/or

___ the cancellation of the Warrant to the extent necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________ whose address is

____________________________________________________________________________________________________________________________________________

__________________________________________________________________________

The undersigned represents and warrants that the representations and warranties in Section 4 of the Subscription Agreement (as defined in this Warrant) are true and accurate with respect to the undersigned on the date hereof.

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”), or pursuant to an exemption from registration under the Securities Act.

Dated: ___________________

(Signature must conform to name of holder as

specified on the face of the Warrant)

(Address)

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

______________________________________________________________ whose address is

_______________________________________________________________________________.

______________________________________________________________________________

Dated: ______________,

Holder's Signature: _____________________________

Holder's Address: _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EX-4.3 4 v060325_ex4-3.htm

Exhibit 4.3

Series B

COMMON STOCK PURCHASE WARRANT

To Purchase Shares of $0.0001 Par Value Common Stock ("Common Stock") of

No. [WB-__] [ ] Shares

USTELEMATICS, INC.

THIS CERTIFIES that, for value received, the holder identified below (the “Holder”) is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof and on or prior to 5:00 p.m. New York City Time on the termination date shown below (the “Termination Date”), but not thereafter, to subscribe for and purchase from USTelematics, Inc., a Delaware corporation (the “Company”), the number of shares of Common Stock shown below (the “Warrant Shares”) at the Exercise Price stated below equal to (as adjusted from time to time pursuant to the terms hereof, the “Exercise Price”). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. This Warrant is being issued in connection with the issuance of the Company’s 9% Secured Convertible Debentures due December __, 2006 (the “Debentures”) pursuant to a Securities Purchase Agreement dated as of December 6, 2006, 2006 (the “Securities Purchase Agreement”), entered into between the Company and the Holder. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Securities Purchase Agreement.

Holder: ________________________________________________________________

Termination Date: ___________________________2011

Number of Warrant Shares: ___________________Shares

Exercise Price: $____ per share

Title of Warrant. Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with (a) the Assignment Form annexed hereto properly endorsed, and (b) any other documentation reasonably necessary to satisfy the Company that such transfer is in compliance with all applicable securities laws. The term “Holder” shall also refer to or any subsequent transferee of this Warrant.

3.	Exercise of Warrant.

(a)

(b)

(c)	Cashless Exercise.

X=Y (A-B)

Where X= the number of shares of Common Stock to be issued to the holder

A= the average of the closing bid prices of the Common Stock for the five (5) Trading Days immediately prior to (but not including) the Exercise Date

B= Exercise Price (as adjusted to the date of such calculation)

6.	Closing of Books. The Company will at no time close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant.

10.

11.	Adjustments of Exercise Price and Number of Warrant Shares.

The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as set forth in this Section 11.

(a)

(b)

(c)

(d)

12.	Voluntary Adjustment by the Company. The Company may at its option, at any time during the term of this Warrant, reduce but not increase the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

13.

14.

15.

(b)

16.	Miscellaneous.

(a)

(b)

(c)

(d)

(e)

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized.

Dated: December 7, 2006

USTELEMATICS, INC.

By:

Name: Howard E. Leventhal

Title: Chief Executive Officer, President

ATTEST:

Print Name:

Exhibit A

FORM OF SUBSCRIPTION

(to be signed only on exercise of Warrant)

TO: US Telematics, Inc.

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

___ ________ shares of the Common Stock covered by such Warrant; or

___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

___ $__________ in lawful money of the United States; and/or

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________ whose address is ___________________________________________________________________________________________________________________________________________

____________________________________________________________________________

Dated:___________________

(Signature must conform to name of holder as

specified on the face of the Warrant)

(Address)

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

___________________________________________________________________________ whose address is

___________________________________________________________________________________________.

___________________________________________________________________________________________

Dated: ______________,

Holder's Signature: ____________________________

Holder's Address: _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

EX-4.4 5 v060325_ex4-4.htm

Exhibit 4.4

Exchange Bonus

COMMON STOCK PURCHASE WARRANT

To Purchase Shares of $0.0001 Par Value Common Stock ("Common Stock") of

No. [W Exchange Bonus-__] [ ] Shares

USTELEMATICS, INC.

THIS CERTIFIES that, for value received, the holder identified below (the “Holder”) is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof and on or prior to 5:00 p.m. New York City Time on the termination date shown below (the “Termination Date”), but not thereafter, to subscribe for and purchase from USTelematics, Inc., a Delaware corporation (the “Company”), the number of shares of Common Stock shown below (the “Warrant Shares”) at the Exercise Price stated below equal to (as adjusted from time to time pursuant to the terms hereof, the “Exercise Price”). The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. This Warrant is being issued in connection with the issuance of the Company’s 9% Secured Convertible Debentures due December __, 2006 (the “Debentures”) pursuant to a Securities Purchase Agreement dated as of December 6, 2006, 2006 (the “Securities Purchase Agreement”), entered into between the Company and the Holder. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Securities Purchase Agreement.

Holder: ________________________________________________________________

Termination Date: ___________________________2011

Number of Warrant Shares: ___________________Shares

Exercise Price: $____ per share

Title of Warrant. Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with (a) the Assignment Form annexed hereto properly endorsed, and (b) any other documentation reasonably necessary to satisfy the Company that such transfer is in compliance with all applicable securities laws. The term “Holder” shall also refer to or any subsequent transferee of this Warrant.

3.	Exercise of Warrant.

(a)

(b)

(c)	Cashless Exercise.

X=Y (A-B)

Where X= the number of shares of Common Stock to be issued to the holder

A= the average of the closing bid prices of the Common Stock for the five (5) Trading Days immediately prior to (but not including) the Exercise Date

B= Exercise Price (as adjusted to the date of such calculation)

6.	Closing of Books. The Company will at no time close its shareholder books or records in any manner which interferes with the timely exercise of this Warrant.

10.

11.	Adjustments of Exercise Price and Number of Warrant Shares.

The number of and kind of securities purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as set forth in this Section 11.

(a)

(b)

(c)

(d)

12.	Voluntary Adjustment by the Company. The Company may at its option, at any time during the term of this Warrant, reduce but not increase the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

13.

14.

15.

(b)

16.	Miscellaneous.

(a)

(b)

Modification and Waiver. This Warrant and any provisions hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. Notwithstanding the foregoing, the Holders of at least 67% of the outstanding Warrants of this series may written instrument delivered to the Company (which instrument may be in counterparts) change or waive compliance with any provision hereof, which change or waiver shall be binding upon all Holders of outstanding Warrants of this series even if not party to such written instrument. Any amendment effected in accordance with this paragraph shall be binding upon the Holder, each future holder of this Warrant and the Company. No waivers of, or exceptions to, any term, condition or provision of this Warrant, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

(c)

(d)

(e)

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized.

Dated: December 7, 2006

USTELEMATICS, INC.

By:

Name: Howard E. Leventhal

Title: Chief Executive Officer, President

ATTEST:

Print Name:

Exhibit A

FORM OF SUBSCRIPTION

(to be signed only on exercise of Warrant)

TO: USTelematics, Inc.

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

___ ________ shares of the Common Stock covered by such Warrant; or

___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2.

___ $__________ in lawful money of the United States; and/or

________________________________________________________________________

Dated: ___________________

(Signature must conform to name of holder as

specified on the face of the Warrant)

(Address)

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

___________________________________________________________________________ whose address is

___________________________________________________________________________________________.

___________________________________________________________________________________________

Dated: ______________,

Holder's Signature: ____________________________

Holder's Address: _____________________________

_____________________________

Signature Guaranteed: ___________________________________________

EX-10.1 6 v060325_ex10-1.htm Unassociated Document

EXHIBIT 10.1

USTELEMATICS, INC.

SECURITIES PURCHASE AGREEMENT

December 6, 2006

TABLE OF CONTENTS

ARTICLE I DEFINITIONS		1
1.1 Definitions		1

ARTICLE II PURCHASE AND SALE		6
2.1	Closing	6
2.2	Deliveries	7
2.3	Closing Conditions	8

ARTICLE III REPRESENTATIONS AND WARRANTIES		9
3.1	Representations and Warranties of the Company	9
3.2	Representations and Warranties of the Purchasers	23

ARTICLE IV OTHER AGREEMENTS OF THE PARTIES		25
4.1	Transfer Restrictions	25
4.2	Key Man Life Insurance	26
4.3	Furnishing of Information	26
4.4	Integration	26
4.5	Exchange With Holders of Existing Bridge Debentures	26
4.6	Securities Laws Disclosure; Publicity	28
4.7	Shareholder Rights Plan	28
4.8	Non-Public Information	28
4.9	Use of Proceeds	28
4.10	Reimbursement	29
4.11	Indemnification of Purchasers	29
4.12	Reservation and Listing of Common Stock	30
4.13	Participation in Future Financing	30
4.14	Subsequent Equity Sales	31
4.15	Equal Treatment of Purchasers	32
4.16	Priority of Investment	32
4.17	Reporting Requirements	32
4.18	Accountants	34
4.19	Access to Records	34
4.20	Board of Directors	34
4.21	Maintenance of Property	34
4.22	Litigation	34
4.23	Preservation of Corporate Existence	34
4.24	Brokers	34
4.25	Conversion	35
4.26	Preemptive Right/Right of First Refusal	39
4.27	Notices	40
4.28	Confidentiality of Identification of Holders	40
4.29	Notice of Stop Options	40
4.30	No Interest in Excess of Legal Rate	40
4.31	Injunction of Posting of Bond	40
4.32	Buy-In	40

TABLE OF CONTENTS

ARTICLE V MISCELLANEOUS		41
5.1	Termination	41
5.2	Fees and Expenses	41
5.3	Entire Agreement	41
5.4	Notices	41
5.5	Amendments; Waivers	42
5.6	Headings	42
5.7	Successors and Assigns	42
5.8	No Third-Party Beneficiaries	42
5.9	Governing Law	42
5.10	Survival	43
5.11	Execution	43
5.12	Severability	43
5.13	Rescission and Withdrawal Right	43
5.14	Replacement of Securities	43
5.15	Remedies	43
5.16	Payment Set Aside	44
5.17	Usury	44
5.18	Independent Nature of Purchasers’ Obligations and Rights	44
5.19	Liquidated Damages	45
5.20	Construction	45

DISCLOSURE SCHEDULES

Schedule 3.1(a)—Subsidiaries

Schedule 3.1(g)—Capitalization

Schedule 3.1(h)—Financial Statements

Schedule 3.1(m)—Regulatory Permits

Schedule 3.1(o)—Agreements, Patents, Trademarks and Copyrights

Schedule 3.1(q)—Transactions With Affiliates and Employees

Schedule 3.1(s)—Company Fees

Schedule 3.1(dd)—Company Accountants

Schedule 3.1(ee)—Company Indebtedness

Schedule 3.1(hh)—Manufacturing and Marketing Rights

Schedule 3.1(ii)—Company Employees

Schedule 3.1(kk)—Environmental and Safety Laws

Schedule 3.1(nn)—Accounts Receivable

Schedule 3.1(pp)—ERISA Benefits

Schedule 3.1(qq)—Material Agreements

Schedule 4.9 —Use of Proceeds

Schedule 4.24 -Broker Compensation

iii

EXHIBIT A—9% Secured Debenture

EXHIBIT B—Funds Escrow Agreement

EXHIBIT C—Form of Opinion of Counsel

EXHIBIT D—Security Agreement

EXHIBIT E—Lock Up Agreement

EXHIBIT F—Collateral Agent Agreement

EXHIBIT G—Form of Series A Warrant

EXHIBIT H—Form of Series B Warrant

EXHIBIT I—Form of Exchange Bonus Warrant

EXHIBIT J—Registration Rights Agreement

ANNEX A—Closing Statement

ANNEX B—Confidential Subscriber Questionnaire

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of December 6, 2006, 2006 among USTelematics, Inc., a Delaware corporation (formerly known as Mobilier, Inc.) (the “Company”), each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”) and each exchanging owner of Bridge Debentures (as defined herein)(each Purchaser and each such exchanging owner, including its successors and assigns a “Holder” and, collectively, the “Holders”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended and Rule 506 promulgated thereunder, the Company desires to (i) issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company and (ii) exchange the outstanding Bridge Debentures for other newly issued securities of the Company, in each case, as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Holder agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings indicated in this Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Additional Stock” shall have the meaning ascribed to such term in Section 4.25(d).

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

“Bridge Debentures” means the $1,500,000 aggregate principal amount of 10% Secured Debentures due October 14, 2006 of the Company issued on or after April 14, 2006.

“Broker” means Axiom Capital Management, Inc. a registered broker/dealer in good standing with the National Association of Securities Dealers, Inc., with offices at 780 Third Avenue, 43^rd Floor, New York, NY 10017, Telephone: (212) 521-3800, Fax: (212) 521-3888; attention: Mark Martino, email: mmartino@axiomcapital.com.

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

“Closing” means the completion of the purchase and sale of the Securities pursuant to Section 2.1, which shall occur on or after the Closing Date.

“Closing Date” means the Business Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

“Collateral Agent Agreement” shall mean the Collateral Agent Agreement in substantially the form of Exhibit F hereto executed and delivered contemporaneously with this Agreement.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter have been reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“Company Counsel” means Alan W. Peryam, LLC, 1120 Lincoln Street, Suite 1000, Denver, CO 80203, Telephone: (303) 866-0900, Fax: (303) 866-0999; email: alan@awperyam.com.

“Conversion Price” means the Exchange Debenture Conversion Price or the Purchased Debenture Conversion Price, as applicable.

“Conversion Rate” means the number of shares of Common Stock for which the applicable Debenture may be converted at any time at the applicable Conversion Price.

“Conversion Right” means the right to convert a Debenture into Common Stock as described in Section 4.25.

“Debentures” means the Purchased Debentures and the Exchange Debentures.

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“Escrow Agent” shall have the meaning set forth in the Escrow Agreement.

“Escrow Agreement” shall mean the Escrow Agreement dated as of December 6, 2006, by and among the Company, and Wollmuth Maher & Deutsch, LLP, as escrow agent, a copy of which is attached as Exhibit B hereto, together with any amendments agreed upon by the parties thereto.

“Exchange” means the delivery of the Exchange Debentures, Series A Warrants, Series B Warrants and Exchange Bonus Warrants in exchange for the Bridge Debentures as described in Section 4.5.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exchange Bonus Warrants” means Common Stock purchase warrants to be issued to the holders of the Bridge Debentures in connection with the Exchange. Each Exchange Bonus Warrant will be exercisable for five years from the Closing for one share of Common Stock. Each holder of Bridge Debentures will receive one Exchange Bonus Warrant for each four shares of Common Stock which would be issued at the time of the Exchange, assuming the complete conversion of the Exchange Debenture at the Conversion Price of the Exchange Debentures then in effect ($0.375 per share on the date hereof). The exercise price of the Exchange Bonus Warrants shall be equal to the Exchange Debenture Conversion Price. The Exchange Bonus Warrants shall be in the form and have the terms and provisions set forth in Exhibit I, and shall provide rights and benefits equivalent to the Series A and Series B Warrants.

“Exchange Debenture Conversion Price” means the price at which the principal amount and any accrued unpaid interest on the Exchange Debentures may be converted into Common Stock. The Exchange Debenture Conversion Price shall be, at all times, 75% of the Purchased Debenture Conversion Price.

“Exchange Debentures” means the debentures to be issued in exchange for Bridge Debentures at the Closing which will be identical to and carry the same rights as the Purchased Debentures except that the Conversion Price of the Exchange Debentures shall be, at all times, 75% of the Conversion Price of the Debentures.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan unanimously adopted by the Board of Directors of the Company or a majority of the members of a committee of directors established for such purpose, (b) securities upon the exercise of or conversion of any Securities issued hereunder, convertible securities, options or warrants issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise or conversion price of any such securities, (c) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a non-affiliated Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and (d) securities described on the Schedules hereto including compensation payable to the Broker for the transactions described in this Agreement and in connection with the issuance of the Bridge Debentures.

“Fully-Diluted Outstanding Capital Stock” means the sum of (i) the total number of then issued and outstanding shares of Common Stock and all other classes of capital stock of the Company, plus (ii) the total number of shares of all Common Stock and all other classes of capital stock of the Company into which all then issued and outstanding and fully-vested Common Stock Equivalents and other securities convertible, exchangeable or otherwise exercisable into other classes of capital stock of the Company may be converted, exchanged or otherwise exercised.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Government Entity” shall have the meaning ascribed to such term in Section 4.22.

“Holder Party” shall have the meaning ascribed to such term in Section 4.11.

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Listing Date” shall have the meaning ascribed to such term in Section 4.12(c).

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.13.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.13.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Purchased Debenture Conversion Price” means the price at which the principal amount and any unpaid interest on the Purchased Debentures may be converted into Common Stock. The initial Purchased Debenture Conversion Price shall be $0.50 per share, subject to adjustment as described in Section 4.25.

“Purchased Debentures” means, the 9% Secured Debentures due December __, 2006, subject to the terms therein, to be issued by the Company to the Purchasers hereunder, in the form of Exhibit A.

“Purchased Securities” means the Purchased Debentures and the Series A Warrants and Series B Warrants being purchased by the Purchasers.

“Records” means all documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) maintained with respect to the Company’s business.

“Registration Rights Agreement” means the Registration Rights Agreement in substantially the form of Exhibit J hereto.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“Securities” means the Debentures, the Series A Warrants, the Series B Warrants and the Exchange Bonus Warrants.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Security Agreement” means the Amended and Restated Security Agreement, dated the date hereof, among the Company and the Holders, in the form of Exhibit D attached hereto.

“Security Documents” shall mean the Security Agreement and any other documents and filing required thereunder in order to grant the Holders a first priority security interest in all of the assets of the Company, including all UCC-1 filing receipts.

“Series A Warrants” means the Warrants to purchase Common Stock having the terms, and in the form of Exhibit G attached hereto.

“Series B Warrants” means the Warrants to purchase Common Stock having the terms, and in the form of Exhibit H attached hereto.

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Purchased Securities purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States Dollars and in immediately available funds.

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.13.

“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.13.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a).

“Trading Market” means, as applicable, the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market, the Nasdaq Capital Market or the OTC Bulletin Board.

“Transaction Documents” means this Agreement, the Securities, the Security Agreement, each of the documents attached as Exhibits to this Agreement, and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Warrants” means the Series A Warrants, the Series B Warrants and the Exchange Bonus Warrants.

ARTICLE II

PURCHASE AND SALE

2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers agree to purchase in the aggregate, severally and not jointly, not less than $3,500,000 nor more than $4,500,000 principal amount of the Purchased Debentures, Series A Warrants to purchase not less than 7,000,000 shares nor more than 9,000,000 shares of Common Stock, and Series B Warrants to purchase not less than 3,500,000 shares nor more than 4,500,000 shares of Common Stock. Each Purchaser shall deliver to the Escrow Agent via wire transfer for immediately available funds equal to their Subscription Amount and the Company shall deliver to the Escrow Agent each Purchased Debenture as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable at the Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of the Broker, or such other location as the parties shall mutually agree.

2.2

Deliveries.

(a)

On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i)

this Agreement duly executed by the Company;

(ii)

a legal opinion of Company Counsel, in the form of Exhibit C attached hereto;

(iii)

a Purchased Debenture with a principal amount equal to such Purchaser’s Subscription Amount, registered in the name of the Purchaser, duly executed by the Company;

(iv)

a Series A Warrant and a Series B Warrant registered in the name of the Purchaser, duly executed by the Company;

(v)

a copy of the Security Agreement duly executed by the Company;

(vi)

a copy of the Escrow Agreement duly executed by the Company;

(vii)

a copy of the Collateral Agent Agreement duly executed by the Company;

(viii)

a copy of duly executed lock-up agreements, in the form of Exhibit E attached hereto, from each officer, director, employee, consultant and advisor of the Company and from each shareholder of the Company owning more than 5% of the issued and outstanding shares of Common Stock (or Common Stock Equivalents on a fully converted basis), who are identified on Schedule 2.2(a); and

(ix)

a copy of the Registration Rights Agreement in the form of Exhibit J attached hereto, duly executed by the Company.

(b)

On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Escrow Agent the following:

(i)

this Agreement duly executed by such Purchaser;

(ii)

such Purchaser’s Subscription Amount by wire transfer to the accounts specified in the Escrow Agreement;

(iii)

a copy of the Security Agreement, duly executed by such Purchaser;

(iv)

the Escrow Agreement duly executed by such Purchaser;

(v)

the Collateral Agent Agreement duly executed by such Purchaser; and

(vi)

the Registration Rights Agreement duly executed by such Purchaser;

(vii)

a copy of the Confidential Subscriber Questionnaire completed and duly executed by such Purchaser.

2.3

Closing Conditions.

(a)

The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

(i)

the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchasers contained herein;

(ii)

all obligations, covenants and agreements of the Purchasers required to be performed at or prior to the Closing Date shall have been performed; and

(iii)

the delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement.

(b)

The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

(i)

the accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained herein;

(ii)

all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

(iii)

the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

(iv)

there shall have been no event which could, or could reasonably be expected to, result in a Material Adverse Effect with respect to the Company since the date hereof;

(v)

the Company shall have satisfied all obligations owed by it to the holders of outstanding Bridge Debentures, as described in Section 4.13 of the Securities Purchase Agreement among the Company (then known as “Mobilier, Inc.”) and such holders, dated as of April 14, 2006;

(vi)

the Common Stock shall have been registered under Section 12(g) of the Exchange Act and the Company shall be current as of the Closing Date with its reporting obligations under the Exchange Act; and

(vii)

from the date hereof to the Closing Date, there shall not have been a banking moratorium declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Purchased Debentures at the Closing.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the disclosure schedules delivered to the Holders concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representations and warranties set forth below to each Holder as of the Closing Date.

(a) Subsidiaries. All of the direct subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded.

(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the other transactions contemplated thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(e) Filings, Consents and Approvals. With the exception of its obligation to file a Current Report on Form 8-K pursuant to Item 3.02 thereof, the Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents.

(f) Issuance of the Securities. The Securities have been duly authorized and, when issued and, in the case of the Purchased Securities, paid for in accordance with the applicable Transaction Documents, will be valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief and other equitable remedies. The shares of Common Stock issuable upon conversion of the Debentures and exercise of the Warrants, when issued in accordance with the terms of the applicable Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance upon conversion of the Debentures and exercise of the Warrants at least equal to the minimum amount required to satisfy such obligations on the date hereof.

(g) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g). Except for the holders of the outstanding Bridge Debentures, no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the issuance of the Securities or as set forth on Schedule 3.1(g), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Securities. Except as disclosed in Schedule 3.1(g), there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. A complete list of stockholders of record, with their shareholdings as of the Closing Date, is included in Schedule 3.1(g).

(h) Financial Statements. The financial statements of the Company for the fiscal year ended May 31, 2006 and unaudited statements as of August 31, 2006, are attached hereto as Schedule 3.1(h). Such financial statements fairly present in all material respects the financial position of the Company and its consolidated subsidiaries, if any, as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject to normal, immaterial adjustments.

(i) Material Changes. Since the date of the Company’s most recent financial statements, attached hereto as Schedule 3.1(h), (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except as disclosed in Schedule 3.1(i).

(j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.

(k) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company that could reasonably be expected to result in a Material Adverse Effect.

(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business except in each case as could not have a Material Adverse Effect.

(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as listed on Schedule 3.1(m), except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens that do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance in all material respects.

(o) Intellectual Property.

(i) The term “Intellectual Property Rights” includes:

(1)

the name of the Company, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, “Marks’’);

(2)

all patents, patent applications, and inventions and discoveries that may be patentable (collectively, “Patents’’);

(3)

all copyrights in both published works and published works (collectively, “Copyrights”);

(4)

all rights in mask works (collectively, “Rights in Mask Works’’); and

(5)

all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, “Trade Secrets’’); owned, used, or licensed by the Company as licensee or licensor.

(ii) Agreements. Schedule 3.1(o) contains a complete and accurate list and summary description including any royalties paid or received by the Company, of all contracts relating to the Intellectual Property Rights to which the Company is a party or by which the Company is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $2,500 under which the Company is the licensee. There are no outstanding and, to Company’s knowledge, no threatened disputes or disagreements with respect to any such agreement.

(iii) Know-How Necessary for the Business. The Intellectual Property Rights are all those necessary for the operation of the Company’s businesses as it is currently conducted or as reflected in the business plan given to the Purchaser. The Company is the owner of all right, title, and interest in and to each of the Intellectual Property Rights, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the Intellectual Property Rights. Except as set forth in Schedule 3.1(o), all former and current employees of the Company and inventors or creators of the Intellectual Property Rights have executed written contracts with the Company that assign to the Company all rights to any inventions, improvements, discoveries, or information relating to the business of the Company. To the Company’s knowledge, no employee of the Company has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than of the Company.

(iv) Patents. Schedule 3.1(o) contains a complete and accurate list and summary description of all Patents. The Company is the owner of all right, title and interest in and to each of the Patents, free and clear of all liens, security interests, charges, encumbrances, entities, and other adverse claims. All of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. No patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding. To the Company’s knowledge, there is no potentially interfering patent or patent application of any third party. No Patent is infringed or, to the Company’s knowledge, has been challenged or threatened in any way. To the Company’s knowledge, none of the products manufactured and sold, nor any process or know-how used, by the Company infringes or is alleged to infringe any patent or other proprietary right of any other Person. All products made, used, or sold under the Patents have been marked with the proper patent notice.

(v) Trademarks. Schedule 3.1(o) contains a complete and accurate list and summary description of all Marks. The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all liens, security interests. charges, encumbrances, equities, and other adverse claims. All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration tiling of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. No Mark has been or is now involved in any opposition, invalidation, or cancellation and, to the Company’s knowledge, no such action is threatened with respect to any of the Marks. To the Company’s knowledge, there is no potentially interfering trademark or trademark application of any third party. No Mark is infringed or, to the Company’s knowledge, has been challenged or threatened in any way. To the Company’s knowledge, none of the Marks used by the Company infringes or is alleged to infringe any trade name, trademark, or service mark of any third party. All products and materials containing a Mark bear the proper federal registration notice where permitted by law.

(vi) Copyrights. Schedule 3.1(o) contains a complete and accurate list and summary description of all Copyrights. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims. All the Copyrights have been registered and are currently in compliance with formal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within one year after the date of Closing. No Copyright is infringed or, to the Company’s knowledge, has been challenged or threatened in any way. To the Company’s knowledge, none of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. All works encompassed by the Copyrights have been marked with the proper copyright notice.

(vii) Trade Secrets. With respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. The Company has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets. The Company has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Company’s knowledge, have not been used, divulged, or appropriated either for the benefit of any Person (other the Company) or to the detriment of the Company. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

(p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. To the best of Company’s knowledge, such insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(q) Transactions With Affiliates and Employees. Except as set forth in Schedule 3.1(q), none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company are presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $10,000.

(r) Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls which the Company believes is sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences..

(s) Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. The Holders shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

(t) Private Placement. Assuming the accuracy of the Holders’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for (i) the offer and sale of the Purchased Securities by the Company to the Purchasers as contemplated hereby, or (ii) in connection with the Exchange.

(u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

(v) Registration Rights. No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company other than the Holders pursuant to the Registration Rights Agreement.

(w) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Holders as a result of the Holders and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities or the Holders’ ownership of the Securities.

(x) Disclosure. The Company understands and confirms that the Holders will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to the Holders regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, furnished by or on behalf of the Company with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Holder makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

(y) No Integrated Offering. Assuming the accuracy of the Holders’ representations and warranties set forth in Section 3.2, except for the offering and issuance of $1.5 million of the Bridge Debentures to 15 accredited investors in April 2006, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions.

(z) Solvency. Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

(aa) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

(bb) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Purchased Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(cc) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(dd) Accountants. The Company’s accountants are set forth on Schedule 3.1(dd) of the Disclosure Schedule.

(ee) Indebtedness and Seniority. As of the date hereof, all indebtedness and liens of the Company are as set forth on Schedule 3.1(ee). As of the Closing Date, no indebtedness or other equity of the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

(ff) No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers.

(gg) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

(hh) Manufacturing and Marketing Rights. Except as described on Schedule 3.1(hh), the Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other Person and is not bound by any agreement that affects the Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products.

(ii) Employees. The Company has no collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Company’s knowledge, threatened with respect to the Company. Except as set forth on Schedule 3.1(ii), the Company is not a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement. To the Company’s knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company; and to the Company’s knowledge the continued employment by the Company of its present employees, and the performance of the Company’s contracts with its independent contractors, will not result in any such violation. The Company has not received any notice alleging that any such violation has occurred. No employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company. The Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company nor does the Company have a present intention to terminate the employment of any officer, key employee or group of employees.

(jj) Obligations of Management. The Company’s Chief Executive Officer, Howard Leventhal, is currently devoting substantially all of his business time to the conduct of business of the Company. The Company is not aware that Howard Leventhal is planning to work less than full time at the Company in the future. No officer or key employee is currently working or, to the Company’s knowledge, plans to work for a competitive enterprise, whether or not such officer of key employee is or will be compensated by such enterprise. The Company intends to purchase ‘Key Man” life insurance covering the life of Howard Leventhal with the Company as beneficiary.

(kk) Environmental and Safety Laws. Except as set forth in Schedule 3.1(kk):

(i) The Company is, and at all times has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law. The Company has no basis to expect, nor has it or any other Person for whose conduct it is or may be held to be responsible received, any actual or threatened order, notice, or other communication from (i) any governmental body or private citizen acting in the public interest, or (ii) the current or prior owner or operator of any facilities, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or threatened obligation to undertake or bear the cost of any environmental, health, and safety liabilities with respect to any of the facilities or any other properties or assets (whether real, personal, or mixed) in which the Company has had an interest, or with respect to any property or facility at or to which Hazardous Materials were generated, manufactured, refined, transferred, imported, used, or processed by the Company, or any other Person for whose conduct it are or may be held responsible, or from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled, or received.

(ii) There are no pending or, to the knowledge of the Company, threatened claims, encumbrances, or other restrictions of any nature, resulting from any environmental, health, and safety liabilities or arising under or pursuant to any Environmental Law, with respect to or affecting any of the facilities or any other properties and assets (whether real, personal, or mixed) in which the Company has or had an interest.

(iii) The Company has no knowledge of any basis to expect, nor has it or any other Person for whose conduct it is or may be held responsible, received, any citation, directive, inquiry, notice, order, summons, warning, or other communication that relates to Hazardous Materials, or any alleged, actual, or potential violation or failure to comply with any Environmental Law, or of any alleged, actual, or potential obligation to undertake or bear the cost of any environmental, health, and safety liabilities with respect to any of the facilities or any other properties or assets (whether real, personal, or mixed) in which the Company had an interest, or with respect to any property or facility to which Hazardous Materials generated, manufactured, refined, transferred, imported, used, or processed by the Company, or any other Person for whose conduct it is or may be held responsible, have been transported, treated, stored, handled, transferred, disposed, recycled, or received.

(iv) Neither the Company nor any other Person for whose conduct it is or may be held responsible, had any environmental, health, and safety liabilities with respect to the facilities or, to the knowledge of the Company, with respect to any other properties and assets (whether real, personal, or mixed) in which the Company (or any predecessor), has or had an interest, or at any property geologically or hydrologically adjoining the facilities or any such other property or assets.

(v) There are no Hazardous Materials present on or in the environment at the facilities or at any geologically or hydrologically adjoining property, including any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land deposits, dumps, equipment (whether moveable or fixed) or other containers, either temporary or permanent, and deposited or located in land, water, sumps, or any other part of the facilities or such adjoining property, or incorporated into any structure therein or thereon. Neither the Company nor any other Person for whose conduct it is or may be held responsible, or to the knowledge of the Company, any other Person, has permitted or conducted, or is aware of, any hazardous activity conducted with respect to the facilities or any other properties or assets (whether real, personal, or mixed) in which the Company has or had an interest except in full compliance with all applicable Environmental Laws.

(vi) There has been no release or, to the knowledge of the Company, threat of release, of any Hazardous Materials at or from the facilities or at any other locations where any Hazardous Materials were generated, manufactured, refined, transferred, produced, imported, used, or processed from or by the facilities, or from or by any other properties and assets (whether real, personal, or mixed) in which the Company has or had an interest, or to the knowledge of the Company any geologically or hydrologically adjoining property, whether by the Company, or any other Person.

(vii) The Company has delivered to the Holders true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by the Company pertaining to Hazardous Materials in, on, or under the facilities, or concerning compliance by the Company, or any other Person for whose conduct they are or may be held responsible, with Environmental Laws.

(viii) For the purpose of this Section, Hazardous Material shall mean (i) materials which are listed or otherwise defined as “hazardous” or “toxic” under any applicable federal, local or stated and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of the hazardous wastes, or other activities involving hazardous substances, including building materials or (b) petroleum products or nuclear materials.

(ix) For the purpose of this Section 3.1(kk), “Environmental Law” shall have the following meaning:

(1)

advising appropriate authorities, employees, and the public intended or actual releases of pollutants or hazardous substances or material, violations of discharge limits, or other prohibitions and of the commencements of activities, such as resource extraction or construction, that could have significant impact on the environment;

(2)

preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the environment;

(3)

reducing the quantities, preventing the release, or minimizing the hazardous characterics of waste that are generated;

(4)

assuring that products are designed, formulated, packaged, and used so that they do not present unreasonable risks to human health or the environment when used or disposed of;

(5)

protecting resources, species or ecological amenities;

(6)

reducing to acceptable levels the risk inherent in the transportation of hazardous substances, pollutants, oil or other potentially harmful substances;

(7)

cleaning up pollutants that have been released, preventing the threat of release or paying the costs of such clean up or prevention; or

(8)

making responsible parties pay private parties, or groups of them, for damages done to their health or to the environment, or permitting self appointed representatives of the public interest to recover for injuries done to public assets.

(ll) Accounts Receivable. All accounts receivable of the Company and its Subsidiaries that are reflected on the Company’s balance sheet or interim balance sheet or on the accounting records of the Company and its Subsidiaries as of the Closing Date (collectively, the “Accounts Receivable”) represent or will represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. Unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible net of the respective reserves shown on the balance sheet or interim balance sheet or on the accounting records of the Company and its Subsidiaries as of the Closing Date (which reserves are adequate and calculated consistent with past practice and, in the case of the reserve as of the Closing Date, will not represent a greater percentage of the Accounts Receivable as of the Closing Date than the reserve reflected in the interim balance sheet represented of the Accounts Receivable reflected therein and will not represent a material adverse change in the composition of such Accounts Receivable in terms of aging). Subject to such reserves, each of the Accounts Receivable either has been or will be collected in full without any set-off, within ninety days after the day on which it becomes due and payable. There is no contest, claim, or right of set-off, other than returns in the ordinary course of business, under any agreement and/or contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. Schedule 3.1(nn) contains a complete and accurate list of all Accounts Receivable as of the date of the interim balance sheet, which list sets forth the aging of such Accounts Receivable.

(mm) Inventory. All inventory of the Company and the Subsidiaries, whether or not reflected in the balance sheet or interim balance sheet, consists of a quality and quantity usable and salable in the ordinary course of business, except for obsolete items and items of below standard quality, all of which have been written off or written down to net realizable value in the balance sheet or interim balance sheet or on the accounting records of the Company and the Subsidiaries as of the Closing Date, as the case may be. All inventories not written off have been priced at the lower of cost or market on the last in, first out basis. The quantities of each item of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Company and the Subsidiaries.

(nn) Employee Benefits: Except as set forth on Schedule 3.1(pp), the Company has no plans that are subject to ERISA. ”ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor law, and regulations and rules issued pursuant to that Act or any successor law.

(oo) Material Agreements. Schedule 3.1(qq) sets forth all agreements of the Company that would be required to be filed with the Commission as exhibits pursuant to the Exchange Act and that have not been filed as of the date hereof.

(pp) Subsidiary Representations. All of the representations, warranties and disclosure described in Article III of this Agreement are hereby made by the Company with respect to each of the Subsidiaries. All such disclosure is made on the Schedules hereto with respect to the Subsidiaries.

(ss) SEC Filings. The Company’s registration statement on Form 10 for the Common Stock has become effective and continues to be effective. The Company has made all filings (“SEC Filings”) with the SEC that it is required to make under the Securities Act and the Exchange Act. Each of the Company’s SEC Filings complied in all material respects with the Securities Act and the Exchange Act, as applicable, in effect as of their respective dates of filing. None of the Company’s SEC Filings contained, as of their respective dates of filing, or contain any untrue statement of a material fact or omitted or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(tt) Minute Books. The minute books of the Company made available to the Holders contain a complete summary of all meetings of directors and stockholders since the time of incorporation.

3.2 Representations and Warranties of the Holders. Each Holder hereby, for itself and for no other Holder, represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a) Organization; Authority. If such Holder is an entity, the entity is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Holder of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Holder. Each Transaction Document to which it is a party has been duly executed by such Holder, and when delivered by such Holder in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Holder, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b) Own Account. Such Holder understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no arrangement or understanding with any other persons regarding the distribution of such Securities (this representation and warranty not limiting such Holder’s right to sell the Securities pursuant to the Registration Statement as defined in the Registration Rights Agreement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Holder is acquiring the Securities hereunder in the ordinary course of its business. Such Holder does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(c) Holder Status. At the time such Holder was offered the Securities, it was, and at the date hereof it is, and on the Closing Date and on each date on which it Exchanges any Bridge Debentures it will be, either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Holder is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

(d) Experience of Such Holder. Such Holder, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Holder is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e) General Solicitation. Such Holder is not acquiring the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

The Holders acknowledge that the Company will be relying on the foregoing representations and warranties in making a determination as to the availability of federal and state securities laws exemptions. The Company acknowledges and agrees that each Holder does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1 Transfer Restrictions.

(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an affiliate of a Holder or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Holder under this Agreement.

(b) The Holders agree to the imprinting, so long as is required by this Section 4.1(b), of a legend on any of the Securities in the following form:

The Company acknowledges and agrees that a Holder may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Holder may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Holder’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities.

4.2 Key Man Life Insurance. Within 90 days from the Closing the Company will purchase a policy of key man life insurance covering the life of Howard Leventhal in the face amount of at least $5.0 Million, with the Company as beneficiary, and will maintain such insurance in force until the later of: (1) payment of all accrued interest and principal, or conversion in accordance with their terms, of all of the Debentures; or (2) exercise or conversion of all the Warrants.

4.3 Maintenance of SEC Filings. The Company will file all reports and documents with the SEC that it is required to file under the Securities Act and the Exchange Act. Each of the Company’s SEC Filings shall comply in all material respects with the Securities Act and the Exchange Act in effect as of their respective dates of filing. None of the Company’s SEC Filings, as of their respective filing dates, shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or the Exchange to the Holders or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

4.5 Exchange of Existing Bridge Debentures. (a) At or immediately before the Closing, the Company shall complete an Exchange with each holder of the outstanding Bridge Debentures. In the Exchange, each Bridge Debenture holder shall receive, for each $100,000 in principal amount of Bridge Debentures exchanged:

(i) An Exchange Debenture in the principal amount equal to the original principal amount of the Bridge Debenture held, plus accrued unpaid interest thereon from April 14, 2006 until the Closing;

(ii) A Series A Warrant to purchase 200,000 shares of Company Common Stock;

(iii) A Series B Warrant to purchase 100,000 shares of Company Common Stock;

(iv) An Exchange Bonus Warrant to purchase 50,000 shares of Company Common Stock at the Conversion Price.

(b) In connection with the Exchange, the Company shall deliver or cause to be delivered to each exchanging Bridge Debenture holder the following:

(i)

this Agreement duly executed by the Company;

(ii)

a legal opinion of Company Counsel, in the form of Exhibit C attached hereto;

(iii)

a Exchange Debenture with a principal amount equal to the principal amount of Bridge Debentures exchanged by such Bridge Debenture holder plus accrued unpaid interest thereon from April 14, 2006 until the Closing, registered in the name of the Holder, duly executed by the Company;

(iv)

a Series A Warrant, a Series B Warrant and an Exchange Bonus Warrant registered in the name of the Holder, duly executed by the Company;

(v)

a copy of the Security Agreement duly executed by the Company;

(vi)

a copy of the Escrow Agreement duly executed by the Company;

(vii)

a copy of the Collateral Agent Agreement duly executed by the Company;

(viii)

(ix)

a copy of the Registration Rights Agreement duly executed by the Company.

(c) In connection with the Exchange, each exchanging Bridge Debenture holder shall deliver or cause to be delivered to the Escrow Agent, the following:

(i)

this Agreement duly executed by such Holder;

(ii)

such Holder’s Bridge Debenture;

(iii)

a copy of the Security Agreement, duly executed by such Holder;

(iv)

the Escrow Agreement duly executed by such Holder;

(v)

the Collateral Agent Agreement duly executed by such Holder; and

(vi)

the Registration Rights Agreement duly executed by such Holder.

4.6 Securities Laws Disclosure; Publicity. The Company and each Holder shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Holder shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Holder, or without the prior consent of each Holder, with respect to any press release of the Company, which consent shall not unreasonably be withheld, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Holder, or include the name of any Holder in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Holder, except (i) as required by federal securities law in connection with the registration statement contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Holders prior notice of such disclosure permitted under subclause (i) or (ii).

4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or, to the knowledge of the Company, any other Person that any Holder is an “Acquiring Person” under any shareholder rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Holder could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Holders. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

4.8 Non-Public Information. As long as the Company remains subject to the reporting provisions of the Exchange Act, the Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Holder or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Holder shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Holder shall be relying on the foregoing representations in effecting transactions in securities of the Company.

4.9 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for the purposes set forth on Schedule 4.9 and not to redeem any Common Stock or Common Stock Equivalents or to settle any outstanding litigation.

4.10 Reimbursement. If any Holder becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Holder to or with any current stockholder), solely as a result of such Holder’s acquisition of the Securities under this Agreement, the Company will reimburse such Holder for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Holders who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Holders and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Holders and any such Affiliate and any such Person. The Company also agrees that neither the Holders nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement.

4.11 Indemnification of Holders. Subject to the provisions of this Section 4.11, the Company will indemnify and hold the Holders and their directors, officers, shareholders, partners, employees and agents (each, a “Holder Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Holder Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Holder, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Holder, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Holder’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Holder may have with any such stockholder or any violations by the Holder of state or federal securities laws or any conduct by such Holder which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Holder Party in respect of which indemnity may be sought pursuant to this Agreement, such Holder Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing. Any Holder Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Holder Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Holder Party. The Company will not be liable to any Holder Party under this Agreement (i) for any settlement by a Holder Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Holder Party’s breach of any of the representations, warranties, covenants or agreements made by the Holders in this Agreement or in the other Transaction Documents.

4.12 Reservation and Listing of Common Stock.

(a) The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.

(b) The Company shall sell additional Common Stock to at least that number of purchasers, in a manner which complies with Section 4.4 above, such that the Company shall have no fewer than 50 holders of Common Stock of the Company not later than the earlier of: (i) the date on which the Company takes the steps required by Section 4.12 (c) below, or (ii) the date by which the Company is required to file the first registration statement required under the Registration Rights Agreement.

(c) The Company shall, (i) in the time and manner required by a Trading Market, prepare and file with such Trading Market a listing application covering its Common Stock and take all steps necessary to cause the Common Stock to be approved for listing and actually listed on the Trading Market not later than the effective date of the Registration Statement (as defined in the Registration Rights Agreement) (the “Listing Date), (ii) provide to the Holders evidence of such listing, and (iii) maintain the listing of such Common Stock for at least as long as the Debentures and the Warrants remain outstanding. A failure of the Company to timely meet the requirements of this Section 4.12(c) is referred to as a “Listing Default”.

4.13 Participation in Future Financing.

(a) From the date hereof until the date that is the 24 month anniversary of the date hereof, upon any financing by the Company or any of its Subsidiaries, involving the issuance of Common Stock or Common Stock Equivalents (a “Subsequent Financing”), each Holder shall have the right to participate in up to an amount of the Subsequent Financing equal to the Holder’s Pro Rata Portion (as defined below) of 100% of the Subsequent Financing (the “Participation Maximum”).

(b) At least ten (10) Business Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Holder a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Holder if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Holder, and only upon a request by such Holder, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Business Day after such request, deliver a Subsequent Financing Notice to such Holder. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the Person with whom such Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto.

(c) Any Holder desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the 5^th Business Day after all of the Holders have received the Pre-Notice that the Holder is willing to participate in the Subsequent Financing, the amount of the Holder’s participation, and that the Holder has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no notice from a Holder as of such 5^th Business Day, such Holder shall be deemed to have notified the Company that it does not elect to participate.

(d) If by 5:30 p.m. (New York City time) on the 5^thBusiness Day after all of the Holders have received the Pre-Notice, notifications by the Holders of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and to the Persons set forth in the Subsequent Financing Notice.

(e) If by 5:30 p.m. (New York City time) on the 5^th Business Day after all of the Holders have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Holders seeking to purchase more than the aggregate amount of the Participation Maximum, each such Holder shall have the right to purchase the greater of (a) their Pro Rata Portion (as defined below) of the Participation Maximum and (b) the difference between the Participation Maximum and the aggregate amount of participation by all other Holders. “Pro Rata Portion” is the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Holder participating under this Section 4.13 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Holders participating under this Section 4.13.

(f) The Company must provide the Holders with a second Subsequent Financing Notice, and the Holders will again have the right of participation set forth above in this Section 4.13, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on substantially the same terms as set forth in such Subsequent Financing Notice within 60 Business Days after the date of the initial Subsequent Financing Notice.

(g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance.

(h) Each Holder that is entitled to participate in future financings pursuant to Section 4.13 of the Securities Purchase Agreement dated April 14, 2006 (the “Prior Agreement”) relating to the Bridge Debentures agrees that the provisions of this Section 4.13 shall supercede its rights under the Prior Agreement.

4.14 Subsequent Equity Sales. From the date hereof until the earlier of such time as no Holder holds any of the Debentures and all outstanding Debentures have been retired, the Company shall be prohibited from effecting or entering into an agreement to effect any subsequent equity sale involving a “Variable Rate Transaction”. The term “Variable Rate Transaction” shall mean a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.

4.15 Equal Treatment of Holders. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts that are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Holder by the Company and negotiated separately by each Holder, and is intended to treat for the Company the Debenture holders as a class and shall not in any way be construed as the Holders acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.16 Priority of Investment. The Company shall subordinate all outstanding loans and loans from shareholders and other beneficial owners of Common Stock and Common Stock Equivalents to the Debentures.

4.17 Reporting Requirements.

(a) For so long as the Company is subject to the reporting requirements of the Exchange Act, the Company shall furnish to the Broker and to each Holder promptly after the filing thereof, copies of all reports, if any, which the Company sends to any of its shareholders and copies of all reports and registration statements, if any, which the Company files with the Commission or any Trading Market.

(b) If at any time the Company is no longer subject to the reporting requirements of the Exchange Act or is in default of its obligation to file any quarterly or annual report with the Commission, the Company shall furnish to the Broker and to each Holder that holds at least $100,000 principal amount of Debentures (or any combination of Debentures and shares of Common Stock with a market value of at least $100,000) the following:

(i) As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Company, audited financial statements of the Company as at the end of such fiscal year and related statements of income and expenses for such fiscal year, all in reasonable detail and in scope to the Holder, prepared in accordance with GAAP, with the opinion of an independent certified public accountant reasonably acceptable to the Holder as evidenced by the prior written consent of the Holder;

(ii) As soon as available and in any event within forty-five (45) days after the end of the sixth (6^th) month of the Company’s fiscal year, reviewed financial statements of the Company as at the end of such six month period and related statements of income and expenses for such period, all in reasonable detail and scope to Holder, prepared in accordance with GAAP, and prepared by an independent certified public accountant reasonably acceptable to the Holder as evidenced by the prior written consent of the Holder;

(iii) As soon as available and in any event within thirty (30) days after the end of each fiscal quarter, quarterly financial statements prepared by the Company and other information reasonably requested by the Holder;

(iv) As soon as available and in any event within fifteen (15) days after the end of each month, monthly reports containing information on the Company’s sales and other information reasonably requested by the Holder;

(v) As soon as available and in any event not less than thirty (30) days prior to the commencement of each fiscal year, a detailed annual budget and strategic plan for the Company’s business for such fiscal year, which shall have been approved by the Company’s Board of Directors;

(vi) As soon as possible and in any event within five (5) days after the Holders notify the Company of the occurrence of each Event of Default, a statement of an authorized officer of the Company setting forth the nature and period of existence of such Event of Default and the action which the Company has taken and proposes to take with respect thereto;

(vii) Promptly after the sending or filing thereof, copies of all reports, if any, which the Company sends to any of its shareholders, and copies of all reports and registration statements, if any, which the Company files with the Commission or any Trading Market;

(viii) Promptly after the filing or receiving thereof, copies of all reports and notices, if any, which the Company files under ERISA, with the Internal Revenue Service or the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Company receives from any of such Persons;

(ix) Promptly upon determination of the need for the Company to obtain additional financing, all information concerning such determination if, as and when available;

(x) Information concerning offers or solicitations, and the terms and conditions thereof, for additional equity financing, given to the Holder not less than 30 days prior to the entering into of such financial arrangement; and

(xi) Such other information respecting the condition or operations, financial or otherwise, of the Company as the Holders may from time to time reasonably request.

4.18 Accountants. The Company shall promptly give the Holder notice of any change in the firm of independent certified public accountants utilized by the Company, provided that any new firm shall be reasonably acceptable to the Holders.

4.19 Access to Records. If at any time the Company is no longer subject to the reporting requirements of the Exchange Act or is in default of its obligation to file any quarterly or annual report with the Commission, the Company shall provide the Broker and to each Holder that holds at least $100,000 principal amount of Debentures (or any combination of Debentures and shares of Common Stock with a market value of at least $100,000) and/or any of its duly authorized representatives, attorneys or accountants access to any and all records at the premises of the Company where such records are kept, such access being afforded without charge, but only upon reasonable request and during normal business hours.

4.20 Board of Directors. If at any time the Company is no longer subject to the reporting requirements of the Exchange Act or is in default of its obligation to file any quarterly or annual report with the Commission, the Company shall have elected and in place a duly elected Board of Directors consisting of at least three directors from and after the Closing Date, provide each Holder that holds at least $250,000 principal amount of Debentures with “observer” status and the right to attend all meetings of the Board of Directors of the Company and to obtain copies of all minutes of meetings of the Board of Directors or any Committee thereof and notices regarding such meetings, as well as copies of all correspondence to members of the Board of Directors, subject to reasonable limitations in order to maintain the attorney-client privilege and confidentiality, including with respect to transactions involving such Holder..

4.21 Maintenance of Property. The Company shall keep all of its property, which is necessary or useful to the conduct of its business, in good working order and condition, ordinary wear and tear excepted.

4.22 Litigation. The Company shall promptly give the Holders notice in writing of all litigation and of all proceedings before any court, tribunal or Government Entity (as defined below) affecting the Company or any Subsidiary, except litigation proceedings which, if adversely determined, would not have a Material Adverse Effect. A “Government Entity” means the United States of America, any foreign country, any state or province, any political subdivision of a state and any agency or instrumentality of the United States of America or any foreign country or any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

4.23 Preservation of Corporate Existence. The Company shall preserve and maintain its corporate existence, rights, privileges and franchises in the jurisdiction of its incorporation, and qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary in view of its business or operations and where the failure to qualify or remain qualified might reasonably have a Material Adverse Effect upon the financial condition, business or operations of the Company and its Subsidiaries taken as a whole.

4.24 Brokers. The Company agrees to indemnify the Holders against and hold the Holders harmless from any and all liabilities to any persons claiming brokerage commissions or similar fees other than the Broker on account of services purported to have been rendered on behalf of the Company in connection with this Agreement or the transactions contemplated hereby and arising out of the Company’s actions. The Company agrees that it will pay the Broker the fees set forth on Schedule 4.24 hereto.

4.25 Conversion. The holders of the Debentures shall have conversion rights as follows (the “Conversion Rights”):

(a) Right to Convert. Each Debenture shall be convertible, at the option of the Holder thereof, at any time after Closing into that number of fully-paid, nonassessable shares of Common Stock determined by dividing (i) the amount of the Debenture to be converted plus the amount of any accumulated but unpaid interest, plus any accumulated unpaid penalties or other adjustments as of the Conversion Date by (ii) the applicable Conversion Price. Upon any decrease or increase in the applicable Conversion Price, as described in this Section 4.25, the applicable Conversion Rate shall be appropriately increased or decreased.

(b) Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Debentures. In lieu of any fractional shares to which the Holder would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. Before any Holder of Debentures shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, such Holder shall notify the Company in writing or by Facsimile or electronic communication (the “Conversion Notice”) that the Holder elects to convert one or more Debentures and (i) agree to surrender Debentures, duly endorsed, at the office of the Company or of any transfer agent for the Common Stock when fully paid or converted (ii) notify the Company or its transfer agent that such Debentures have been lost, stolen or destroyed and agrees to execute and deliver to the Company or its transfer agent and agreesatisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such Debentures, and agree to surrender Debentures, duly endorsed, at the office of the Company or of any transfer agent for the Common Stock when fully paid or converted.

The Company shall, within three (3) business days after receipt of the Conversion Notice, issue and deliver at such office to such Holder, a certificate or certificates for the number of shares of Common Stock to which such Holder shall be entitled as aforesaid and a check payable to the Holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock; provided, however, that if the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act or a merger, sale or liquidation of the Company, the conversion may, at the option of any Holder tendering Debentures for conversion, be conditioned upon the closing of such transaction, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion shall not be deemed to have converted such Debentures until immediately prior to the closing of such transaction. In the event that the certificate or certificates for the number of shares of Common Stock to which such Holder shall be entitled upon conversion shall not be timely delivered as required in this paragraph, or within one day thereafter, the Company shall pay to each Holder whose certificates were not timely delivered, upon written demand therefore, an amount equal to $100.00 for each $10,000 of principal amount of Debentures for each delay per day beyond the delivery date specified above (as liquidated damages and not as a penalty).

(c) Delivery of Unlegended Shares. Within three (3) business days (such third business day being the “Unlegended Shares Delivery Date”) after the business day on which the Company has received (i) a notice that Shares or Warrant Shares or any other Common Shares held by a Holder have been sold pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii) a representation that the prospectus delivery requirements, or the requirements of Rule 144, as applicable and if required, have been satisfied, and (iii) the original share certificates representing the Common Shares that have been sold, and (iv) in the case of sales under Rule 144, customary representation letters of the Holder and/or Holder’s broker regarding compliance with the requirements of Rule 144, the Company at its expense, (y) shall deliver, and shall cause legal counsel selected by the Company to deliver to its transfer agent (with copies to Holder) an appropriate instruction and opinion of such counsel, directing the delivery of Common Shares without any legends including the legend set forth in Section 4(i) above (the “Unlegended Shares”); and (z) cause the transmission of the certificates representing the Unlegended Shares together with a legended certificate representing the balance of the submitted Shares certificate, if any, to the Holder at the address specified in the notice of sale, via express courier, by electronic transfer or otherwise on or before the Unlegended Shares Delivery Date.

In the event the Shares are electronically transferable, then delivery of the Shares must be made by electronic transfer provided request for such electronic transfer has been made by the Holder and the Holder has complied with all applicable securities laws in connection with the sale of the Common Stock received upon conversion, including, without limitation, the prospectus delivery requirements. A Debenture representing the balance of the Debenture not so converted will be provided by the Company to the Holder if requested by Holder, provided the Holder delivers the original Debenture to the Company. In the event that a Holder elects not to surrender a Debenture for reissuance upon partial payment or conversion, the Holder hereby agrees to indemnify and hold harmless the Company against any and all loss or damage attributable to a third-party claim in an amount in excess of the actual amount then due under the Debenture. In the event that Unlegended Shares shall not be timely delivered as required in this paragraph (or within five days thereof), or within one day thereafter, the Company shall pay to each Holder whose certificates were not timely delivered, upon written demand therefore, an amount equal to $100.00 for each $10,000 of principal amount of Debentures for each delay per day beyond the delivery date specified above (as liquidated damages and not as a penalty).

(d) Favored Nations Provision. Other than in connection with an Exempt Issuance, if at any time while Debenture or Warrants are outstanding the Company shall offer, issue or agree to issue any Common Shares or securities convertible into or exercisable for Common Shares (or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise price per share which shall be less than the Conversion Price in respect of the Shares, or if less than the Warrant exercise price in respect of the Warrant Shares, without the consent of Holders of 85% of the principal amount of outstanding Debentures for the Debentures, or holders of 85% of the outstanding Warrants proposed to be affected, then the Conversion Price and/or Warrant exercise price shall automatically be adjusted to such other lower issue price. The Holder is granted the registration rights described in the Registration Rights Agreement in relation to additional Common Shares which are issuable upon conversion of the Debenture and exercise of the Warrants as a result of the reduction in the Conversion Price and Warrant exercise price except that the Filing Date and Effective Date vis-à-vis such additional Common Shares shall be, respectively, the thirtieth (30^th) and sixtieth (60^th) date after the effective date of the reduction of the Conversion Price and Warrant exercise price. For purposes of the issuance and adjustment described in this paragraph, the issuance of any security of the Company carrying the right to convert such security into Common Shares or of any warrant, right or option to purchase Common Shares shall result in the issuance of the additional Common Shares upon the sooner of the agreement to or actual issuance of such convertible security, warrant, right or option and again at any time upon any subsequent issuances of Common Shares upon exercise of such conversion or purchase rights if such issuance is at a price lower than the Conversion Price or Warrant exercise price in effect upon such issuance. The rights of the Holder set forth in this 4.25(d) are in addition to any other rights the Holder has pursuant to this Purchase Agreement, the Debentures, any of the Transaction Documents, and any other agreement referred to or entered into in connection herewith.

(e) Maximum Conversion. The Holder shall not be entitled to convert on a Conversion Date that amount of the Debenture in connection with that number of Common Shares which would be in excess of the sum of (i) the number of Common Shares beneficially owned by the Holder and its affiliates on a Conversion Date, (ii) any Common Shares issuable in connection with the unconverted portion of the Debenture, and (iii) the number of Common Shares issuable upon the conversion of the Debenture with respect to which the determination of this provision is being made on a Conversion Date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the shares of outstanding Common Stock of the Borrower on such Conversion Date. For the purposes of the provision to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate conversions of only 4.99% and aggregate conversion by the Holder may exceed 4.99%. The Holder shall have the authority and obligation to determine whether the restriction contained in this Section 4.25(e) will limit any conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Debentures are convertible shall be the responsibility and obligation of the Holder. The Holder may waive the conversion limitation described in this Section 4.25(e), in whole or in part, upon and effective after 61 days prior written notice to the Borrower to increase such percentage to up to 9.99%.

(f) Merger, Sale of Assets, etc. If the Borrower at any time shall consolidate with or merge into or sell or convey all or substantially all its assets to any other corporation, this Debenture, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to convert the Debenture into such number and kind of shares or other securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance, upon or with respect to the securities subject to the conversion immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance.

(g) Reclassification, etc. If the Borrower at any time shall, by reclassification or otherwise, change the Common Shares into the same or a different number of securities of any class or classes that may be issued or outstanding, this Debenture, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to convert into an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Shares immediately prior to such reclassification or other change.

(h) Adjustments for Subdivisions or Combinations of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the applicable Conversion Price in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the applicable Conversion Price in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

(i) No Impairment. The Company will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 4.25 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights against impairment.

(j) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section 4.25, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of an outstanding Exchange Debenture or Purchased Debenture, as the case may be, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any Holder, furnish or cause to be furnished to such Holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the applicable Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Debentures, including the Debenture held by the requesting Holder.

(k) Waiver of Adjustment of Conversion Price. Notwithstanding anything herein to the contrary, any downward adjustment of the Purchased Debenture Conversion Price (and the corresponding Exchange Debenture Conversion Price) may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the Holders of 85% of the principal amount of Purchased Debentures and the Exchange Debentures (voting together as a separate class). Any such waiver shall bind all present and future Holders of the Purchased Debentures and the Exchange Debentures.

(l) Issue Taxes. The Company shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of the shares of Common Stock on conversion of Debentures pursuant hereto.

(m) Mandatory Conversion. Upon the election of the Company, given by written notice delivered to all Holders (“Mandatory Conversion Notice”), the outstanding Debentures shall be converted into Common Stock in accordance with this Agreement if (i) the Registration Statement described in the Registration Rights Agreement is effective and available for use by the Holders on the date the Mandatory Conversion Notice is given by the Company, (ii) the closing price of the Common Stock is at least three (3) times the then current Conversion Price for each of the 20 consecutive trading days immediately preceding the date on which the Mandatory Conversion Notices is given by the Company, and (iii) the average daily trading volume for the Common Stock during such 20 consecutive trading day period immediately preceding the date on which the Mandatory Conversion Notice is given exceeded 100,000 shares.

4.26 Preemptive Right/Right of First Refusal.

(a) Notice of Sale. For as long as Debentures are outstanding, if the Company desires to issue and sell shares of its capital stock or rights, options or other securities exercisable for or convertible into shares of its capital stock, then the Company shall first notify each Holder of Debentures of the material terms of such proposed sale (such notice, a “Company Issuance Notice”).

(i) Right of First Refusal. The Company shall then permit each Holder of Debentures to acquire, at the time of the closing of such sale, such number of the shares of capital stock or other securities as would enable such Holder to maintain its percentage of equity ownership (calculated on an as-converted basis, assuming the conversion of all the Debentures) in the Company following such issuance at a level held by it immediately prior to such issuance (assuming conversion of the Debentures held by such Holder). The Holders shall each have twenty (20) days after the delivery of any Company Issuance Notice to elect by notice to the Company to purchase such shares or securities at the price and upon the terms and conditions stated in such notice at the time of the closing of such sale.

(ii) Exceptions. The rights set forth in this Section 4.26 shall not apply to the issuance of shares or grant of options or warrants (including shares issuable upon exercise of such options or warrants) (i) that are an “Exempt Issuance” as defined above, or (ii) that are issued pursuant to acquisitions, mergers, purchases of assets or similar transactions; provided that in each such instance the issuance is approved by the directors of the Company. The rights set forth in this Section 4.26 shall terminate upon completion of a Qualified Public Offering by the Company.

4.27 Notices. Any notice required by the provisions of this Article IV to be given to the Holders of Debentures shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each Holder of record at such Holder’s address appearing on the books of the Company.

4.28 Confidentiality of Identification of Holders. The Company shall maintain as confidential the identity of all Holders (except as identification may be required in registrations or other filings required by the Securities Exchange Act of 1934, as amended.)

4.29 Notice of Stop Orders. The Company shall immediately, but not later than within two business days, notify each Holder of the receipt of any Stop Order or similar order of any governmental agency.

4.30 No Interest in Excess of Legal Rate. Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

4.31 Injunction Posting of Bond. In the event a Holder shall elect to convert a Debenture or part thereof or exercise the Warrant in whole or in part, the Company may not refuse conversion or exercise based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of such Debenture or exercise of all or part of such Warrant shall have been sought and obtained by the Company or at the Company’s request or with the Company’s assistance, and the Company has posted a surety bond for the benefit of such Holder in the amount of 120% of the outstanding principal and interest of the Debenture, or aggregate purchase price of the Shares and Warrant Shares which are sought to be subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment in Holder’s favor.

4.32 Buy-In. In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such shares issuable upon conversion of a Debenture by the Delivery Date, or fails to deliver Unlegended Shares by the Unlegended Share Delivery Date and if after seven (7) business days after the Delivery Date, or the Unlegended Share Delivery Date, as appropriate, the Holder or a broker on the Holder’s behalf, purchases (in an open market transaction or otherwise) Common Shares to deliver in satisfaction of a sale by such Holder of the Common Shares which the Holder was entitled to receive upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (A) the Holder's total purchase price (including brokerage commissions, if any) for the Common Shares so purchased exceeds (B) the aggregate principal and/or interest amount of the Debenture for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Holder purchases Common Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of Debenture principal and/or interest, the Company shall be required to pay the Holder $1,000, plus interest. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.

ARTICLE V

MISCELLANEOUS

5.1 Termination. This Agreement may be terminated by any Holder, as to such Holder’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Holders, by written notice to the other parties, if the Closing and the Exchange have not been consummated on or before December 31, 2006; provided, however, that no such termination will affect the right of any party to sue for any breach by the other party (or parties).

5.2 Fees and Expenses. The Company shall deliver, prior to the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities.

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each Holder or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Holder. Any Holder may assign any or all of its rights under this Agreement to any Person to whom such Holder assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Holders.”

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.11.

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

5.10 Survival. The representations and warranties contained herein shall survive the Closing and the delivery, and/or Exchange of the Securities, as applicable for the applicable statue of limitations.

5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) this Agreement with the same force and effect as if such facsimile signature page were an original thereof.

5.12 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefore, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Holder exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Holder may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefore, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.

5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Holders and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Holder pursuant to any Transaction Document or a Holder enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the Effectiveness Date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Holder with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Holder’s election.

5.18 Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder under any Transaction Document are several and not joint with the obligations of any other Holder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Holder pursuant thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Holder shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. Each Holder has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. The Company has elected to provide all Holders with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Holders.

5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.20 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

5.21 Currency. Unless stated otherwise, all references to dollars and the symbol “$” in the Transaction Documents shall mean United States dollars.

(Signature Pages Follow)

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

USTELEMATICS, INC.		Address for Notice:

By:		335 Richert Drive Wood Dale, IL 60109 Attn: Howard Leventhal Fax: (312) 896-9235
	Name: Howard E. Leventhal Title: Chief Executive Officer, President

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR HOLDER FOLLOWS]

HOLDER SIGNATURE PAGES TO USTELEMATICS, INC.

SECURITIES PURCHASE AGREEMENT

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Holder: ____________________________________________________________

Signature of Authorized Signatory of Holder: _____________________________________

Name of Authorized Signatory: ________________________________________________

Title of Authorized Signatory: _________________________________________________

Email Address of Holder:_____________________________________________________

Address for Notice of Holder:

Address for Delivery of Securities for Holder (if not same as above):

Subscription Amount: $_______________

Principal Amount of Bridge Debentures exchanged (if applicable): $ ________________

Investment Funds to be paid to the Escrow Agent shall be delivered by wire transfer to:

HSBC Bank USA, National Association

452 Fifth Avenue

New York, NY 10018

ABA# 021-001-088

Account# 002-600-161

Re: Axiom-Mobilier Escrow/reference # 10-879419

Attention: Corporate Trust and Loan Agency

[SIGNATURE PAGES CONTINUE]

EX-10.2 7 v060325_ex10-2.htm

Exhibit 10.2

Exhibit F

COLLATERAL AGENT AGREEMENT

COLLATERAL AGENT AGREEMENT (this “Agreement”) dated as of December 7, 2006, among Axiom Capital Management, Inc. (the “Collateral Agent”), and the parties identified on Schedule A hereto (each, individually, a “Lender” and collectively, the “Lenders”), who hold or will acquire 9% Secured Convertible Debentures due December 7, 2008 issued or to be issued by USTelematics, Inc. (“Parent”), a Delaware corporation, at or about the date of this Agreement as described in the Security Agreement referred to in Section 1(a) below (collectively herein the “Debentures”).

WHEREAS, the Lenders have made, are making and will be making loans to Parent, as evidenced by the Debentures, to be secured by certain collateral; and

WHEREAS, it is desirable to provide for the orderly administration of such collateral by requiring each Lender to appoint the Collateral Agent, and the Collateral Agent has agreed to accept such appointment and to receive, hold and deliver such collateral, all upon the terms and subject to the conditions hereinafter set forth; and

WHEREAS, it is desirable to allocate the enforcement of certain rights of the Lenders under the Debentures for the orderly administration thereof.

NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the parties hereto agree as follows:

1. Collateral.

(a) Contemporaneously with the execution and delivery of this Agreement by the Collateral Agent and the Lenders, (i) the Collateral Agent has or will have entered into an Amended and Restated Security Agreement among the Collateral Agent, Parent and ______________ and _______________ (each a “Guarantor” and together with Parent, “Debtors”) (the “Security Agreement”), regarding the grant of a security interest in assets owned by Debtors (such assets are referred to herein and in the Security Agreement as the “Collateral”) to the Collateral Agent, for the benefit of the Lenders and (ii) Parent is issuing the Debentures to the Lenders pursuant to a Securities Purchase Agreement dated at or about the date of this Agreement (the “Securities Purchase Agreement”). Collectively, the Security Agreement, the Debentures and Securities Purchase Agreement and other agreements referred to therein are referred to herein as “Borrower Documents”.

(b) The Collateral Agent hereby acknowledges that any Collateral held by the Collateral Agent is held for the benefit of the Lenders in accordance with this Agreement and the Borrower Documents. No reference to the Borrower Documents or any other instrument or document shall be deemed to incorporate any term or provision thereof into this Agreement unless expressly so provided.

(c) The Collateral Agent is to distribute in accordance with the Borrower Documents any proceeds received from the Collateral which are distributable to the Lenders in proportion to their respective interests in the Obligations as defined in the Security Agreement.

2. Appointment of the Collateral Agent.

The Lenders hereby appoint the Collateral Agent (and the Collateral Agent hereby accepts such appointment) to take any action including, without limitation, the registration of any Collateral in the name of the Collateral Agent or its nominees prior to or during the continuance of an Event of Default (as defined in the Borrower Documents), the exercise of voting rights upon the occurrence and during the continuance of an Event of Default, the application of any cash collateral received by the Collateral Agent to the payment of the Obligations, the making of any demand under the Borrower Documents, the exercise of any remedies given to the Collateral Agent pursuant to the Borrower Documents and the exercise of any authority pursuant to the appointment of the Collateral Agent as an attorney-in-fact pursuant to the Security Agreement that the Collateral Agent deems necessary or proper for the administration of the Collateral pursuant to the Security Agreement. Upon disposition of the Collateral in accordance with the Borrower Documents, the Collateral Agent shall promptly distribute any cash or Collateral in accordance with Section 10.4 of the Security Agreement. Lenders must notify Collateral Agent in writing of the issuance of any Debentures to Lenders by Parent not listed on Schedule A. The Collateral Agent will not be required to act hereunder in connection with Debentures the issuance of which was not disclosed in writing to the Collateral Agent nor will the Collateral Agent be required to act on behalf of any assignee of Debentures unless notice of such assignment has been provided to the Collateral Agent pursuant to Section 11(f).

3. Action by the Majority in Interest.

(a) Certain Actions. Each of the Lenders covenants and agrees that only a Majority in Interest shall have the right, but not the obligation, to undertake the following actions (it being expressly understood that less than a Majority in Interest hereby expressly waive the following rights that they may otherwise have under the Borrower Documents):

(i) Acceleration. If an Event of Default occurs, after the applicable cure period, if any, a Majority in Interest may, on behalf of all the Lenders, instruct the Collateral Agent to provide to Debtors notice to cure such default and/or declare the unpaid principal amount of the Debentures to be due and payable, together with any and all accrued interest thereon and all costs payable pursuant to such Debentures;

(ii) Enforcement. Upon the occurrence of any Event of Default after the applicable cure period, if any, a Majority in Interest may instruct the Collateral Agent to proceed to protect, exercise and enforce, on behalf of all the Lenders, their rights and remedies under the Borrower Documents against Debtors, and such other rights and remedies as are provided by law or equity;

(iii) Waiver of Past Defaults. A Majority in Interest may instruct the Collateral Agent to waive any Event of Default by written notice to Debtors, and the other Lenders; and

(iv) Amendment. A Majority in Interest may instruct the Collateral Agent to waive, amend, supplement or modify any term, condition or other provision in the Debenture or Borrower Documents in accordance with the terms of the Debenture or Borrower Documents so long as such waiver, amendment, supplement or modification is made with respect to all of the Debentures and with the same force and effect with respect to each of the Lenders.

(b) Permitted Subordination. A Majority in Interest may instruct the Collateral Agent to agree to subordinate any Collateral to any claim and may enter into any agreement with Debtors to evidence such subordination; provided, however, that subsequent to any such subordination, each Debenture shall remain pari passu with each other Debenture held by the Lenders.

(c) Further Actions. A Majority in Interest may instruct the Collateral Agent to take any action that it may take under this Agreement by instructing the Collateral Agent in writing to take such action on behalf of all the Lenders.

(d) Majority in Interest. For so long as any Debentures remain outstanding, a Majority in Interest for the purposes of this Agreement and the Security Agreement shall mean Lenders who hold not less than ninety percent (90%) of the outstanding principal amount of the Debentures.

4. Power of Attorney.

(a) To effectuate the terms and provisions hereof, the Lenders hereby appoint the Collateral Agent as their attorney-in-fact (and the Collateral Agent hereby accepts such appointment) for the purpose of carrying out the provisions of this Agreement including, without limitation, taking any action on behalf of, or at the instruction of, the Majority in Interest at the written direction of the Majority in Interest and executing any consent authorized pursuant to this Agreement and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable (and lawful) to accomplish the purposes hereof.

(b) All acts done under the foregoing authorization are hereby ratified and approved and neither the Collateral Agent nor any designee nor agent thereof shall be liable for any acts of commission or omission, for any error of judgment, for any mistake of fact or law except for acts of gross negligence or willful misconduct.

5. Expenses of the Collateral Agent. The Lenders shall pay any and all reasonable costs and expenses incurred by the Collateral Agent, including, without limitation, reasonable costs and expenses relating to all waivers, releases, discharges, satisfactions, modifications and amendments of this Agreement, the administration and holding of the Collateral, insurance expenses, and the enforcement, protection and adjudication of the parties’ rights hereunder by the Collateral Agent, including, without limitation, the reasonable disbursements, expenses and fees of the attorneys the Collateral Agent may retain, if any, each of the foregoing in proportion to their respective holdings of Debentures.

6. Reliance on Documents and Experts. The Collateral Agent shall be entitled to rely upon any notice, consent, certificate, affidavit, statement, paper, document, writing or communication (which may be by telegram, cable, telex, telecopier, or telephone) reasonably believed by it to be genuine and to have been signed, sent or made by the proper person or persons, and upon opinions and advice of its own legal counsel, independent public accountants and other experts selected by the Collateral Agent.

7. Duties of the Collateral Agent; Standard of Care.

(a) The Collateral Agent’s only duties are those expressly set forth in this Agreement, and the Collateral Agent hereby is authorized to perform those duties in accordance with commercially reasonable practices. The Collateral Agent may exercise or otherwise enforce any of its rights, powers, privileges, remedies and interests under this Agreement and applicable law or perform any of its duties under this Agreement by or through its officers, employees, attorneys, or agents.

(b) The Collateral Agent shall act in good faith and with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances.

(c) Any funds held by the Collateral Agent hereunder need not be segregated from other funds except to the extent required by law. The Collateral Agent shall be under no liability for interest on any funds received by it hereunder.

8. Resignation. The Collateral Agent may resign and be discharged of its duties hereunder at any time by giving written notice of such resignation to the other parties hereto, stating the date such resignation is to take effect. Within five (5) days of the giving of such notice, a successor collateral agent shall be appointed by the Majority in Interest; provided, however, that if the Lenders are unable to agree upon a successor within such time period and are unable to notify the Collateral Agent during such period of the identity of the successor collateral agent, the successor collateral agent may be a person designated by the Collateral Agent, and any and all fees of such successor collateral agent shall be the joint and several obligation of the Lenders. The Collateral Agent shall continue to serve until the effective date of the resignation or until its successor accepts the appointment and receives the Collateral held by the Collateral Agent but shall not be obligated to take any action hereunder. The Collateral Agent may deposit any Collateral with the Supreme Court of the State of New York for New York County or any such other court in New York State that accepts such Collateral.

9. Exculpation. The Collateral Agent and its officers, employees, attorneys and agents shall not incur any liability whatsoever for the holding or delivery of documents or the taking of any other action in accordance with the terms and provisions of this Agreement, for any mistake or error in judgment, for compliance with any applicable law or any attachment, order or other directive of any court or other authority (irrespective of any conflicting term or provision of this Agreement), or for any act or omission of any other person engaged by the Collateral Agent in connection with this Agreement, unless occasioned by the exculpated person’s own gross negligence or willful misconduct; and each party hereto hereby waives any and all claims and actions whatsoever against the Collateral Agent and its officers, employees, attorneys and agents, arising out of or related directly or indirectly to any or all of the foregoing acts, omissions and circumstances.

10. Indemnification. The Lenders hereby agree to indemnify, reimburse and hold harmless the Collateral Agent and its directors, officers, employees, attorneys and agents, jointly and severally, from and against any and all claims, liabilities, losses and expenses that may be imposed upon, incurred by, or asserted against any of them, arising out of or related directly or indirectly to this Agreement or the Collateral, except such as are occasioned by the indemnified person’s own gross negligence or willful misconduct.

11. Miscellaneous.

(a) Rights and Remedies Not Waived. No act, omission or delay by the Collateral Agent shall constitute a waiver of the Collateral Agent’s rights and remedies hereunder or otherwise. No single or partial waiver by the Collateral Agent of any default hereunder or right or remedy that it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion.

(b) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to conflicts of laws that would result in the application of the substantive laws of another jurisdiction.

(i) In any litigation in any court with respect to, in connection with, or arising out of this Agreement or any instrument or document delivered pursuant to this Agreement, or the validity, protection, interpretation, collection or enforcement hereof or thereof, or any other claim or dispute howsoever arising, between the Collateral Agent and the Lenders or any Lender, then each Lender, to the fullest extent it may legally do so, (A) waives the right to interpose any setoff, recoupment, counterclaim or cross-claim in connection with any such litigation, irrespective of the nature of such setoff, recoupment, counterclaim or cross-claim, unless such setoff, recoupment, counterclaim or cross-claim could not, by reason of any applicable federal or state procedural laws, be interposed, pleaded or alleged in any other action; and (B) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION AND ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH LENDER AGREES THAT THIS SECTION 11(c) IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE COLLATERAL AGENT WOULD NOT ENTER THIS AGREEMENT IF THIS SECTION 11(c) WERE NOT PART OF THIS AGREEMENT.

(ii) Each Lender irrevocably consents to the exclusive jurisdiction of any State or Federal Court located within the County of New York, State of New York, in connection with any action or proceeding arising out of or relating to this Agreement or any document or instrument delivered pursuant to this Agreement or otherwise. In any such litigation, each Lender waives, to the fullest extent it may effectively do so, personal service of any summons, complaint or other process and agree that the service thereof may be made by certified or registered mail directed to such Lender at its address for notice determined in accordance with Section 11(e) hereof. Each Lender hereby waives, to the fullest extent it may effectively do so, the defenses of forum non conveniens and improper venue.

(d) Admissibility of this Agreement. Each of the Lenders agrees that any copy of this Agreement signed by it and transmitted by telecopier for delivery to the Collateral Agent shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence.

(e) Address for Notices. Any notice or other communication under the provisions of this Agreement shall be given in writing and delivered in person, by reputable overnight courier or delivery service, by facsimile machine (receipt confirmed) with a copy sent by first class mail on the date of transmissions, or by registered or certified mail, return receipt requested, directed to such party’s addresses set forth below (or to any new address of which any party hereto shall have informed the others by the giving of notice in the manner provided herein):

In the case of the Collateral Agent, to him at:

Axiom Capital Management, Inc.

_________________________________

Telephone: ________________________

Fax: _____________________________

Email: ____________________________

With a copy to:

Wollmuth Maher & Deutsch, LLP

_________________________________

Telephone: ________________________

Fax: _____________________________

Email: ____________________________

In the case of the Lenders, to:

The address and telecopier number set forth on

Schedule A hereto.

In the case of Debtors, to:

USTelematics, Inc.

335 Richert Dr.

Wood Dale, IL 60191

Attn: Howard Leventhal, CEO & President

Fax: (312) 896-9235

Email: howard@ustelematics.com

With a copy by telecopier only to:

Alan W. Peryam, LLC

1120 Lincoln Street, Suite 1000

Denver, CO 80203

Telephone: (303) 866-0900

Fax: (303) 866-0999

Email: alan@awperyam.com

(f) Amendments and Modification; Additional Lender. No provision hereof shall be modified, altered, waived or limited except by written instrument expressly referring to this Agreement and to such provision, and executed by the parties hereto. Any transferee of a Debenture who acquires a Debenture after the date hereof will become a party hereto by signing the signature page and sending an executed copy of this Agreement to the Collateral Agent and receiving a signed acknowledgement from the Collateral Agent.

(g) Fee. Upon the occurrence of an Event of Default, the Lenders collectively shall pay the Collateral Agent the sum of $10,000 on account, to apply against an hourly fee of $350 to be paid to the Collateral Agent by the Lenders for services rendered pursuant to this Agreement. All payments due to the Collateral Agent under this Agreement including reimbursements must be paid when billed. The Collateral Agent may refuse to act on behalf of or make a distribution to any Lender who is not current in payments to the Collateral Agent. Payments required pursuant to this Agreement shall be pari passu to the Lenders’ interests in the Debentures. The Collateral Agent is hereby authorized to deduct any sums due the Collateral Agent from Collateral in the Collateral Agent’s possession.

(h) Counterparts/Execution. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile signature and delivered by facsimile transmission.

(i) Successors and Assigns. Whenever in this Agreement reference is made to any party, such reference shall be deemed to include the successors, assigns, heirs and legal representatives of such party. No party hereto may transfer any rights under this Agreement, unless the transferee agrees to be bound by, and comply with all of the terms and provisions of this Agreement, as if an original signatory hereto on the date hereof.

(j) Captions: Certain Definitions. The captions of the various sections and paragraphs of this Agreement have been inserted only for the purposes of convenience; such captions are not a part of this Agreement and shall not be deemed in any manner to modify, explain, enlarge or restrict any of the provisions of this Agreement. As used in this Agreement the term “person” shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof.

(k) Severability. In the event that any term or provision of this Agreement shall be finally determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable law by an authority having jurisdiction and venue, that determination shall not impair or otherwise affect the validity, legality or enforceability (i) by or before that authority of the remaining terms and provisions of this Agreement, which shall be enforced as if the unenforceable term or provision were deleted, or (ii) by or before any other authority of any of the terms and provisions of this Agreement.

(l) Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all other agreements and understandings, oral or written, with respect to the matters contained herein.

(m) Schedules. The Collateral Agent is authorized to annex hereto any schedules referred to herein.

[THIS SPACE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Collateral Agent Agreement to be signed, by their respective duly authorized officers or directly, as of the date first written above.

“LENDERS”


		_______________________________________ ___________________ Collateral Agent

Acknowledged:

USTELEMATICS, INC.

For Itself and on behalf of the Subsidiaries

By:

Name: Howard E. Leventhal

Title: CEO and President

This Collateral Agent Agreement may be signed by facsimile signature and delivered by

confirmed facsimile transmission.

SCHEDULE A TO COLLATERAL AGENT AGREEMENT

LENDER NAME AND ADDRESS			PRINCIPAL AMOUNT OF DEBENTURES




TOTALS

EX-10.3 8 v060325_ex10-3.htm

Exhibit 99.12

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (“Agreement”) is entered into as of December 7, 2006, between USTelematics, Inc., a Delaware corporation with offices at 335 Richert Drive, Wood Dale IL 60109 (the “Company”) and each of the parties listed under “Holders” hereto (each, a “Holder”).

WITNESSETH:

WHEREAS, pursuant to that certain Securities Purchase Agreement, dated on or about the date hereof, by and between the Company and each Holder (the “Purchase Agreement”) of the 9% Secured Convertible Debentures due December __, 2008 (the “Debentures”) issued by the Company, the Company has agreed to issue to the Holders, and the Holders have agreed to acquire from the Company, (i) Debentures in the aggregate principal amount of up to $6.0 million and (ii) Series A Warrants, Series B Warrants and Exchange Bonus Warrants to purchase shares (“Shares”) of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”), subject to the terms and conditions set forth therein; and

WHEREAS, pursuant to that certain Placement Agency Agreement, dated on or about March 20, 2006, by and between the Company and Axiom Capital Management LLC (the “Placement Agreement”), the Company has agreed to issue the Placement Agent Warrant (together with the Series A Warrants, the Series B Warrants and the Exchange Bonus Warrants, the “Warrants”) to purchase shares of Common Stock, subject to the terms and conditions set forth therein; and

WHEREAS, the Debentures will be convertible into shares of Common Stock and the Warrants will be exercisable for shares of Common Stock (the “Common Shares”) pursuant to the terms and conditions set forth therein.

NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in the Debentures, the Purchase Agreement, the Placement Agreement, the Warrants and this Agreement, the Company and each Holder agree as follows:

1. Certain Definitions. Capitalized terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Purchase Agreement or the Debenture. As used in this Agreement, the following terms shall have the following respective meanings:

“Closing” and “Closing Date” shall have the meanings ascribed to such terms in the Purchase Agreement.

“Commission” or “SEC” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

“Effectiveness Date” means, with respect to the initial Registration Statement required to be filed hereunder, the 90^th calendar day following the date hereof (or the 120^th calendar day following the date hereof in the event of a “full review” by the Commission of the initial Registration Statement) and, with respect to any additional Registration Statements which may be required hereunder, the 90^th calendar day (or the 120^th calendar day in the event of a “full review” by the Commission of such additional Registration Statement) following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required hereunder; provided, however, that in the event the Company is notified by the Commission that one of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, then the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates required above; provided, further, if any such Effectiveness Date falls on a day that is not a Trading Day, then such Effectiveness Date shall be the Trading Day immediately prior to such date.

“Filing Date” means, with respect to the initial Registration Statement required hereunder, the 40th calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 2, the 30th calendar day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required hereunder (but in no event sooner than the 180th calendar day following the date the initial Registration Statement is first declared effective by the Commission unless the filing of such additional Registration Statement sooner than such 180th calendar is permitted pursuant to Rule 415); provided, however, if any such Filing Date falls on a day that is not a Trading Day, then such Filing Date shall be the Trading Day immediately prior to such date.

“Holder” and “Holders” shall include each Holder, Axiom Capital Management LLC and any permitted transferee or transferees of Registrable Securities (as defined below), the Debentures and/or Warrants which have not been sold to the public to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement and/or the Purchase Agreement.

The terms “register,” “registered” and “registration” shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.

“Registrable Securities” shall mean: (i) the Shares or other securities issued or issuable to each Holder or its permitted transferee or designee (a) upon conversion of the Debentures, or (b) upon any distribution with respect to, any exchange for or any replacement of, a Debenture, (c) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement, (d) as payment of any portion of the principal amount or interest in lieu of cash with respect to the Debentures (even if not permitted under the terms of the Debentures or the Purchase Agreement), or (e) issued or issuable to such Holder or its permitted transferee or designee, under Favored Nations 4.25(d) provisions of the Purchase Agreement; (ii) securities issued or issuable in respect of the foregoing upon any stock split, stock dividend, recapitalization or similar event; and (iii) any other security issued as a dividend or other distribution with respect to, in exchange for or in replacement of the securities referred to in the preceding clauses; provided that all such shares shall cease to be Registrable Securities at such time as they have been sold under a Registration Statement or pursuant to Rule 144 under the Securities Act or otherwise or at such time as they are eligible to be sold pursuant to Rule 144(k).

“Registration Expenses” shall mean all expenses to be incurred in connection with each Holder’s registration rights under this Agreement not included in Selling Expenses, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company and one counsel for the Holders, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company).

“Registration Statement” shall have the meaning set forth in Section 2(a) herein.

“Regulation D” shall mean Regulation D as promulgated pursuant to the Securities Act, and as subsequently amended.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“Securities Act” or “Act” shall mean the Securities Act of 1933, as amended.

“Selling Expenses” shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities.

2. Registration Requirements.

The Company shall use its best efforts to effect the registration of the Registrable Securities (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act) as would permit or facilitate the sale or distribution of all the Registrable Securities in the manner (including manner of sale) and in all states reasonably requested by the Holders. The best efforts by the Company to effect the registration under each Registration Statement shall include, without limitation, the following:

(a) Shelf Registration. On or prior to each Filing Date, the Company shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of the Registrable Securities not covered by an effective registration statement on such Filing Date for an offering to be made on a continuous basis pursuant to Rule 415; provided, however, that if such Registrable Securities hereunder shall equal or exceed 30% of the issued and outstanding Common Stock of the Company (less any shares of Common Stock held by Affiliates of the Company) on the actual filing date of the initial Registration Statement, the initial Registration Statement shall register at a minimum a number of shares of Common Stock which is equal to 30% of the issued and outstanding shares of Common Stock of the Company (less any shares of Common Stock held by Affiliates of the Company) on such actual filing date, but not less than 100% of the Common Stock issuable upon conversion of the Debentures (the “Registration Cap”) and the remaining Registrable Securities shall be subject to registration at the next succeeding Filing Date. In such event, the number of Registrable Securities to be registered for each Holder shall be reduced pro-rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from the initial Registration Statement. Notwithstanding anything herein to the contrary, the Company shall continue to use best efforts to register all Registrable Securities as promptly as possible and if requested by Holders holding at least 50% of the then outstanding Registrable Securities not registered, shall seek to promptly register Registrable Securities in excess of the Registration Cap, provided that no Registration Statement filed pursuant to a request made under this sentence shall be subject to a required Effectiveness Date. Subject to the terms of this Agreement and the preceding sentence, the Company shall use its best efforts to cause a Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold, or may be sold without volume restrictions pursuant to Rule 144(k), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the “Effectiveness Period”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. New York City time on a Trading Day. The Company shall immediately notify the Holders via facsimile of the effectiveness of a Registration Statement on the same Trading Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of a Registration Statement. The Company shall, by 9:30 a.m. New York City time on the Trading Day after the Effective Date (as defined in the Purchase Agreement), file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within 1 Trading Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Interfering Event under Section 2(d).

(b) The Company shall, as expeditiously as possible after the Closing Date:

(i) But in any event no later than thirty (30) days after the Closing Date, prepare and file a registration statement with the Commission pursuant to Rule 415 under the Securities Act on Form SB-2 or Form S-3 under the Securities Act (or in the event that the Company is ineligible to use such form, such other form as the Company is eligible to use under the Securities Act provided that any other form shall be converted into an S-3 as soon as Form S-3 becomes available to the Company) covering resales by the Holders as selling stockholders (not underwriters) of the Registrable Securities (“Registration Statement”), which Registration Statement, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Debentures and exercise of the Warrants. . Thereafter the Company shall use its best efforts to cause such Registration Statement and other filings to be declared effective as soon as possible, and in any event no later than the Effectiveness Date. Without limiting the foregoing, the Company will promptly respond to all SEC comments, inquiries and requests, and shall request acceleration of effectiveness at the earliest possible date.

(ii) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement and notify the Holders of the filing and effectiveness of such Registration Statement and any amendments or supplements.

(iii) The Company shall sell additional Common Stock to at least that number of purchasers that qualify as Accredited Investors as defined under Regulation D adopted under the Securities Act of 1933, as amended, in a manner which complies with Section 4.4 of the Purchase Agreement, such that the Company shall have no fewer than 50 holders of Common Stock of the Company not later than the earlier of: (i) the date on which the Company takes the steps required by Section 4.12 (c) of the Purchase Agreement, or (ii) the date by which the Company is required to file the first registration statement described in Section 2(a)(i) above.

(iv) Register and qualify the securities covered by such Registration Statement under the securities or “Blue Sky” laws of all domestic jurisdictions; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(v) Notify promptly each Holder that has Registrable Securities included in the Registration Statement of the happening of any event (but not the substance or details of any such event) of which the Company has knowledge as a result of which the prospectus (including any supplements thereto or thereof) included in such Registration Statement, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing (each an “Event”), and use its best efforts to promptly update and/or correct such prospectus. Each Holder will hold in confidence and will not make any disclosure of any such Event and any related information disclosed by the Company.

(vi) Notify each Holder of the issuance by the Commission or any state securities commission or agency of any stop order suspending the effectiveness of the Registration Statement or the threat or initiation of any proceedings for that purpose. The Company shall use its best efforts to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time.

(vii) Furnish to each Holder that has Registrable Securities included in the Registration Statement such numbers of copies of a current prospectus conforming with the requirements of the Securities Act, copies of the Registration Statement, any amendment or supplement thereto and any documents incorporated by reference therein and such other documents as such Holder may reasonably require in order to facilitate the disposition of Registrable Securities owned by such Holder

(viii) List the Registrable Securities covered by such Registration Statement with all securities exchange(s) and/or markets on which the Common Stock is then listed and prepare and file any required filings with any exchange or market where the Common Shares are traded.

(ix) Take all steps reasonably necessary to enable Holders to avail themselves of the prospectus delivery mechanism set forth in Rule 153 (or successor thereto) under the Act.

(x) Furnish to each Holder for review a copy of each draft of a registration statement to be filed under the Agreement at least 5 days before filing of an initial registration, and at least two business days before filing of any amendment to a previously filed amendment.

(c) Notwithstanding the obligations under Section 2(b)(v) or any provision of this Agreement, if (i) in the good faith judgment of the Company, following consultation with legal counsel, it would be detrimental to the Company and its stockholders for resales of Registrable Securities to be made pursuant to the Registration Statement due to the existence of a material development or potential material development involving the Company that the Company would be obligated to disclose in the Registration Statement, which disclosure would be premature or otherwise inadvisable at such time or would have a material adverse effect upon the Company and its stockholders, or (ii) in the good faith judgment of the Company, it would adversely affect or require premature disclosure of the filing of a Company-initiated registration of any class of its equity securities, then the Company will have the right to suspend the use of the Registration Statement for one period of not more than 30 calendar days in any 12 month period, but only if the Company reasonably concludes, after consultation with outside legal counsel, that the failure to suspend the use of the Registration Statement as such would create a of a material liability or violation under applicable securities laws or regulations.

(d) Set forth below in this Section 2(d) are (I) events that may arise that the Purchasers consider will interfere with the full rights under this Agreement, the Purchase Agreement, and the Debentures (the “Interfering Events”), and (II) certain remedies applicable in each of these events.

(i) Payments by the Company. If (i) at any time after effectiveness of the Registration Statement, sales thereunder during the registration period (as described in Section 5) cannot be made for any reason, other than by reason of the operation of Section 2(c), for a period of more than 10 consecutive business days, (ii) at any time after effectiveness of the Registration Statement, sales thereunder during the Registration Period cannot be made for a period of time that exceeds the limitations set forth in Section 2(c), or (iii) at any time after the Registrable Securities are listed in accordance with Section 2(b)(viii), the Common Stock is not listed or included for quotation on the Trading Market where shares of the Company’s common stock are then traded for more than 10 consecutive calendar days, then the Company will thereafter make a payment as liquidated damages to each Holder as set forth below (payable in the manner described in Section 2(d)(ii) below for Late Registration Payment). The amount of the payment made to each Holder will be equal to 2% of the purchase price paid for (i) the Debentures then held by the Holder and not previously converted into Registrable Securities and sold by the Holder and (ii) Registrable Securities obtained upon conversion of the Debentures for each 30 calendar days that sales cannot be made under the effective Registration Statement or the Common Shares are not listed or included for quotation on the Trading Market where shares of the Company’s common stock are then traded (but any day on which both conditions exist shall count as a single day and no day taken into account for purposes of determining whether any payment is due under Section 2 (d)(ii) shall be taken into account for purposes of determining whether any payment is due under this Section 2(d)(i) or the amount of such payment). The number of shares not previously sold as specified in the previous sentence shall be determined as of the end of the respective 30-day period. In no event shall payment pursuant to this Section exceed 30% in the aggregate of the purchase price paid for (i) the Debentures then held by the Holder and (ii) Registrable Securities obtained upon conversion of the Debentures (including such Holder’s predecessors and successors) for the entire registration period (as described in Section 5). These payments will be prorated on a daily basis during the 30-day period and will be paid to each Holder within ten business days following the end of each 30-day period as to which payment is due hereunder or provided that the respective Holder delivered to the Company at least two business days prior thereto information with respect to the principal amount of Debentures and number of Shares not previously sold by such Holder (together with reasonable supporting documentation). The Holders may make a claim for additional damages as a remedy for the Company’s failure to comply with the timelines set forth in this Section, but acknowledgement of such right in this Agreement shall not constitute an admission by the Company that any such damages exist or may exist. Nothing contained in the preceding sentence shall be read to limit the ability of the Holders to seek specific performance of this Agreement.

(ii) Effect of Late Registration. If the Registration Statement: (i) has not been declared effective by the Required Effective Date other than by reason of the operation of Section 2(c), or (ii) the Company does not respond to comments received from the Securities and Exchange Commission (“SEC”) on a Registration Statement filed as required under this agreement within 10 business days after receipt and the registration statement does not become effective by the Effectiveness Date, or (iii) the Registration Statement does not become effective within 5 business days after receipt of notice from the SEC that there will be no further review or no review on a registration statement filed pursuant to this agreement, or (iv) if the initial Registration Statement is not filed by the Filing Date, then the Company will make a payment to each Holder as liquidated damages for such delay (each a “Late Registration Payment”). Each Late Registration Payment will be equal to 2% of the purchase price paid for (i) the Debentures then held by the Holder and not previously converted into Shares and sold by the Holder and (ii) Registrable Securities obtained upon conversion of the Debentures, for the first 30 calendar days after the Effectiveness Date, and 2% of such purchase price for each period of 30 calendar days thereafter (but no day taken into account for purposes of determining whether any payment is due under Section 2(d)(i) shall be taken into account for purposes of determining whether any payment is due under this Section 2(d)(ii) or the amount of such payment). The Late Registration Payment shall be made, at the option of the Company, in cash or registered Company Common Stock with a value per share equal to the lowest reported closing bid price in the Trading Market for the Common Stock during the 20 Trading Days immediately before accrual of the obligation to make the payment. In no event shall payments pursuant to this Section exceed 30% in the aggregate of the purchase price paid for (i) the Debentures then held by the Holder and not previously converted into Shares and sold by the Holder and (ii) Registrable Securities obtained upon conversion of the Debentures (including such Holder’s predecessors and successors) for the entire registration period (as described in Section 5). The Late Registration Payments will be prorated on a daily basis during the 30-day period and will be paid to the initial Holders within ten business days following the end of each 30-day period as to which payment is due hereunder, provided that, upon request from the Company, the respective Holder delivered to the Company within 3 business days prior thereto information with respect to the principal amount of Debentures and the number of Shares not previously sold by such Holder (together with reasonable supporting documentation). The Holders may make a claim for additional damages as a remedy for the Company’s failure to comply with the timelines set forth in this Section, but acknowledgement of such right in this Agreement shall not constitute an admission by the Company that any such damages exist or may exist. Nothing contained in the preceding sentence shall be read to limit the ability of the Holders to seek specific performance of this Agreement.

(e) During the registration period, the Company will make available, upon reasonable advance notice during normal business hours, for inspection by any Holder whose Registrable Securities are being sold pursuant to a Registration Statement, all pertinent financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”) as reasonably necessary to enable each such Holder to exercise its due diligence responsibility in connection with or related to the contemplated offering. The Company will cause its officers, directors and employees to supply all information that any Holder may reasonably request for purposes of performing such due diligence.

(f) Each Holder will hold in confidence, use only in connection with the contemplated offering and not make any disclosure of all Records and other information that the Company determines in good faith to be confidential, and of which determination the Holders are so notified, unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, (iii) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement (to the knowledge of the relevant Holder), (iv) the Records or other information were developed independently by the Holder without breach of this Agreement, (v) the information was known to the Holder before receipt of such information from the Company, or (vi) the information was disclosed to the Holder by a third party not under an obligation of confidentiality. However, a Holder may make disclosure of such Records and other information to any attorney, adviser, or other third party retained by it that needs to know the information as determined in good faith by the Holder (the “Holder Representative”), if the Holder advises the Holder Representative of the confidentiality provisions of this Section 2(f). The Company is not required to disclose any confidential information in the Records to any Holder unless and until such Holder has entered into a confidentiality agreement (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially to the effect of this Section 2(f). Unless legally prohibited from so doing, each Holder will, upon learning that disclosure of Records containing confidential information is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein will be deemed to limit the Holder’s ability to sell Registrable Securities in a manner that is otherwise consistent with applicable laws and regulations.

(g) The Company shall file a Registration Statement with respect to any newly authorized and/or reserved Registrable Securities consisting of Shares described in clause (i) of the definition of Registrable Securities within ten (10) business days of any stockholders’ meeting authorizing same and shall use its best efforts to cause such Registration Statement to become effective within ninety (90) days of such stockholders’ meeting. If the Holders become entitled, pursuant to an event described in clause (ii) and (iii) of the definition of Registrable Securities, to receive any securities in respect of Registrable Securities that were already included in a Registration Statement, subsequent to the date such Registration Statement is declared effective, and the Company is unable under the securities laws to add such securities to the then effective Registration Statement, the Company shall promptly file, in accordance with the procedures set forth herein, an additional Registration Statement with respect to such newly Registrable Securities. The Company shall use its best efforts to (i) cause any such additional Registration Statement, when filed, to become effective within 30 days of that date that the need to file the Registration Statement arose. All of the registration rights and remedies under this Agreement shall apply to the registration of such newly reserved shares and such new Registrable Securities.

(h) If at any time during the term of this Agreement, the registration statement described in Section 2(a) is not effective with respect to some or all of the Registrable Securities, the Holder shall have the following “piggyback” registration rights. If the Company at any time following the Closing Date proposes for any reason to register Common Shares under the Securities Act (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto), it shall promptly give written notice to the Holder of its intention to so register such equity securities and, upon the written request, given within 20 days after delivery of such notice by the Company, of Holder to include in such registration Registrable Securities held by the Holder (which request shall specify the number of Registrable Shares proposed to be included in such registration by the Holder and shall state the intended method of disposition of such Registrable Securities by the Holder), the Company shall use its best efforts to cause all such Registrable Securities to be included in such registration on the same terms and conditions as the securities otherwise being sold in such registration; provided, however, that if the managing underwriter advises the Company in writing that the inclusion of all Registrable Securities proposed to be included in such registration would interfere materially with the successful marketing (including pricing) of primary shares (the “Primary Shares”) proposed to be registered by the Company, then the number of Primary Shares and Registrable Securities proposed to be included in such registration shall be included in the following order:

(i) first, the Primary Shares; and

(ii) second, the Registrable Securities requested to be included in such registration pursuant to this Section 2(h)

provided, that in the case of any such underwritten offering of Common Shares by the Company that is in satisfaction of a demand registration pursuant to Section 2(i), the order for inclusion of Primary Shares and Registrable Securities shall be as set forth in that section.

(i) If at any time during the term of this Agreement, the registration statement described in Section 2(a) is not effective with respect to some or all of the Registrable Securities, the Holder shall have the following demand registration rights. If the Company shall be requested in writing by the Holder to effect a registration on Form S-1 or Form SB-2 under the Securities Act of Registrable Securities, then the Company shall promptly use its best efforts to effect such registration under the Securities Act of such Registrable Securities which the Company has been so requested to register in the manner described in Section 2(a); provided, however, that the Company shall not be obligated to effect any registration under this Section 2(i) except in accordance with the following provisions:

(i) The Company shall not be obligated to use its best efforts to file and cause to become effective (x) more than two registration statements on Form S-1 or Form SB-2 with respect to Registrable Securities initiated by a Holder pursuant to this Section 2(i) in a 12 month period; (y) any registration statement covering less than $100,000 in value of Registrable Securities or (z) any registration statement during any period in which any other registration statement pursuant to which Shares are to be or were sold has been filed and not withdrawn or has been declared effective within the prior 60 days;

(ii) The Company may delay the filing or effectiveness of any registration statement for a period of up to 30 days after the date of a request for registration pursuant to this Section 2(i) if the Company determines in good faith that (A) it is in possession of material, non-public information concerning an acquisition, merger, recapitalization, consolidation, reorganization or other material transaction by or of the Company or concerning pending or threatened litigation and (B) disclosure of such information would jeopardize any such transaction or litigation or otherwise materially harm the Company; provided, however, that the Company may not exercise such deferral right more than once in any twelve month-period.

(iii) At such time as the Corporation shall have qualified for the use of Form S-3 promulgated under the Securities Act or any successor form thereto, the Holder shall have the right to request in writing registrations on Form S-3 or such successor form of Registrable Securities held by Purchaser in the manner described in Section 2(a), which request or requests shall (i) specify the number of Registrable Securities held by the Holder intended to be sold or disposed of, (ii) state the intended method of disposition of such Registrable Securities held by the Holder and (iii) relate to Registrable Shares having an anticipated aggregate offering price of at least $500,000. A requested registration on Form S-3 or any such successor form in compliance with Section 4 shall not count as a registration statement initiated pursuant to Section 2(i) but shall otherwise be treated as a registration statement initiated pursuant to, and shall, except as otherwise expressly provided in Section 4, be subject to Section 2.

3. Expenses of Registration. All Registration Expenses in connection with any registration, qualification or compliance with registration pursuant to this Agreement shall be borne by the Company, and all Selling Expenses of a Holder shall be borne by such Holder.

4. Registration on Form S-3. The Company shall use its reasonable best efforts to meet the “registrant eligibility” requirements for a secondary offering set forth in the general instructions to Form S-3 or any comparable or successor form or forms, or in the event that the Company is ineligible to use such form, such form as the Company is eligible to use under the Securities Act, provided that if such other form is used, the Company shall convert such other form to a Form S-3 as soon as the Company becomes so eligible.

5. Registration Period. In the case of the registration effected by the Company pursuant to this Agreement, the Company shall keep such registration effective and current until the earlier of (a) the date on which all the Holders have completed the sales or distribution described in the Registration Statement relating thereto or, if earlier until such Registrable Securities may be sold by the Holders under Rule 144(k) (provided that the Company’s transfer agent has accepted an instruction from the Company to such effect) and (b) the seventh (7th) anniversary of the Closing Date.

6. Indemnification.

(a) Company Indemnity. The Company will indemnify each Holder, each of its officers, directors, agents and partners, and each person controlling each of the foregoing, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls, within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, any underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any final prospectus (as amended or supplemented if the Company files any amendment or supplement thereto with the SEC), Registration Statement filed pursuant to this Agreement or any post-effective amendment thereof or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, or any violation by the Company of the Securities Act or any state securities law or in either case, any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each Holder, each of its officers, directors, agents and partners, and each person controlling each of the foregoing, for any reasonable legal fees of a single counsel and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to a Holder to the extent that any such claim, loss, damage, liability or expense arises out of or is based on (i) any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter (if any) therefor and stated to be specifically for use therein, (ii) any failure by any Holder to comply with prospectus delivery requirements or the Securities Act or Exchange Act or any other law or legal requirement applicable to them or any covenant or agreement contained in the Purchase Agreement or this Agreement or (iii) an offer or sale of Registrable Securities occurring during a period in which sales under the Registration Statement are suspended as permitted by this Agreement. The indemnity agreement contained in this Section 6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent will not be unreasonably withheld).

(b) Holder Indemnity. Each Holder will, severally but not jointly, if Registrable Securities held by it are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers, agents and partners, and any other stockholder selling securities pursuant to the Registration Statement and any of its directors, officers, agents, partners, and any person who controls such stockholder within the meaning of the Securities Act or Exchange Act and each underwriter, if any, of the Company’s securities covered by such a Registration Statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act and the rules and regulations thereunder, each other Holder (if any), and each of their officers, directors and partners, and each person controlling such other Holder(s) against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such final prospectus (as amended or supplemented if the Company files any amendment or supplement thereto with the SEC), Registration Statement filed pursuant to this Agreement or any post-effective amendment thereof or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading in light of the circumstances under which they were made or (ii) failure by any Holder to comply with prospectus delivery requirements or the Securities Act or any other law or legal requirement applicable to them or any covenant or agreement contained in the Purchase Agreement or this Agreement, and will reimburse the Company and such other Holder(s) and their directors, officers and partners, underwriters or control persons for any reasonable legal fees or any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such final prospectus (as amended or supplemented if the Company files any amendment or supplement thereto with the SEC), Registration Statement filed pursuant to this Agreement or any post-effective amendment thereof in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein, and provided that the maximum amount for which such Holder shall be liable under this indemnity shall not exceed the net proceeds received by such Holder from the sale of the Registrable Securities pursuant to the registration statement in question. The indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any such claims, losses, damages or liabilities if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld).

(c) Procedure. Each party entitled to indemnification under this Section 6 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim in any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at its own expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 6 except to the extent that the Indemnifying Party is materially and adversely affected by such failure to provide notice. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such non-privileged information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

7. Contribution. If the indemnification provided for in Section 6 herein is unavailable to the Indemnified Parties in respect of any losses, claims, damages or liabilities referred to herein (other than by reason of the exceptions provided therein), then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities as between the Company on the one hand and any Holder(s) on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of such Holder(s) in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of any Holder(s) on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by such Holder(s).

In no event shall the obligation of any Indemnifying Party to contribute under this Section 7 exceed the amount that such Indemnifying Party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 6(a) or 6(b) hereof had been available under the circumstances.

The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraphs. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraphs shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section, no Holder shall be required to contribute any amount in excess of the amount by which in the case of any Holder, the net proceeds received by such Holder from the sale of Registrable Securities pursuant to the registration statement in question. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

8. Survival. The indemnity and contribution agreements contained in Sections 6 and 7 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, the Purchase Agreement or the Placement Agreement and (ii) the consummation of the sale or successive resales of the Registrable Securities.

9. Information by Holders. As a condition to the obligations of the Company to complete any registration pursuant to this Agreement with respect to the Registrable Securities of each Holder, such Holder will furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended methods of disposition of the Registrable Securities held by it as is reasonably required by the Company to effect the registration of the Registrable Securities. At least five business days prior to the first anticipated filing date of a Registration Statement for any registration under this Agreement, the Company will notify each Holder of the information the Company requires from that Holder whether or not such Holder has elected to have any of its Registrable Securities included in the Registration Statement. If the Company has not received the requested information from a Holder by the business day prior to the anticipated filing date, then the Company may file the Registration Statement without including comments from, or requested of, that Holder.

10. Further Assurances. Each Holder will cooperate with the Company, as reasonably requested by the Company, in connection with the preparation and filing of any Registration Statement hereunder, unless such Holder has notified the Company in writing of such Holder’s irrevocable election to exclude all of such Holder’s Registrable Securities from such Registration Statement.

11. Suspension of Sales. Upon receipt of any notice from the Company under Section 2(b)(v) or 2(c), each Holder will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until (i) it receives copies of a supplemented or amended prospectus contemplated by Sections 2(b)(v) or (ii) the Company advises the Holder that a suspension of sales under Section 2(c) has terminated. If so directed by the Company, each Holder will deliver to the Company (at the expense of the Company) or destroy all copies in the Holder’ s possession (other than a limited number of file copies) of the prospectus covering such Registrable Securities that is current at the time of receipt of such notice.

12. Replacement Certificates. The certificate(s) representing the Registrable Securities held by the Holder may be exchanged by the Holder at any time and from time to time for certificates with different denominations representing an equal aggregate number of Registrable Securities of the same tenor, as reasonably requested by such Holder upon surrendering the same. No service charge will be made for such registration or transfer or exchange. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of certificates evidencing any Registrable Securities, and, in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it, or upon surrender and cancellation of such certificate if mutilated, the Company will make and deliver a new certificate of like tenor and dated as of such cancellation at no charge to the holder.

13. Transfer or Assignment. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The rights granted to the Holder by the Company under this Agreement to cause the Company to register Registrable Securities may be transferred or assigned (in whole or in part) to a transferee or assignee of the Debenture, or Registrable Securities, and all other rights granted to the Holder by the Company hereunder may be transferred or assigned to any transferee or assignee of the Debenture, or Registrable Securities; provided in each case that (i) the Company is given written notice by the Holder at the time of or within a reasonable time after such transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and provided further that the transferee or assignee of such rights agrees in writing to be bound by the registration provisions of this Agreement, (ii) such transfer or assignment is not made under the Registration Statement or Rule 144, (iii) such transfer is made according to the applicable requirements of the Purchase Agreement, and (iv) the transferee has provided to the Company an investor questionnaire (or equivalent document) evidencing that the transferee is a “qualified institutional buyer” as defined in Rule 144A under the Securities Act or an “accredited investor” as defined in Rule 501(a)(1),(2),(3), or (7) of Regulation D.

14. Miscellaneous.

(a) Remedies. The Company and the Holders acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

(b) Jurisdiction. The Company and each Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the United States District Court, the New York state courts and other courts of the United States sitting in New York County, New York for the purposes of any suit, action or proceeding arising out of or relating to this Agreement and (ii) hereby waives, and agrees not to assert in any such suit action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. The Company and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this paragraph shall affect or limit any right to serve process in any other manner permitted by law.

(c) Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing by facsimile, mail or personal delivery and shall be effective upon actual receipt of such notice. The addresses for such communications shall be:

to the Company:

USTelematics, Inc.

335 Richert Drive

Wood Dale, IL 60109

Attn: Howard Leventhal

Fax: (312) 896-9235

with a copy to:

Alan W. Peryam, LLC

1120 Lincoln St, Ste 1000

Denver Colorado 80203

If to the Purchasers, to the addresses set forth on Schedule I to the Purchase Agreement:

with a copy to:

Wollmuth Maher Deutsch LLP

500 Fifth Avenue, 12th Floor

New York, New York 10110

Facsimile: (212) 382-0050

Attn: Rory M. Deutsch

Any party hereto may from time to time change its address for notices by giving at least five days’ written notice of such changed address to the other parties hereto.

(d) Waivers. No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. The representations and warranties and the agreements and covenants of the Company and each Holder contained herein shall survive the Closing.

(e) Execution in Counterpart. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, it being understood that all parties need not sign the same counterpart.

(f) Signatures. Facsimile signatures shall be valid and binding on each party submitting the same.

(g) Entire Agreement; Amendment. This Agreement, together with the Purchase Agreement, the Debentures, , and the agreements and documents contemplated hereby and thereby, contains the entire understanding and agreement of the parties, and may not be amended, modified or terminated except by a written agreement signed by the Company plus the Holders of 85% of the Registrable Securities (determined on a fully-diluted, as converted basis).

(h) Governing Law. This Agreement and the validity and performance of the terms hereof shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts executed and to be performed entirely within such state, except to the extent that the law of the State of Delaware regulates the Company’s issuance of securities.

(i) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY.

(j) Titles. The titles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(k) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.

COMPANY:

USTELEMATICS, INC.

By:

Name: Howard E. Leventhal

Title: Chief Executive Officer, President

COUNTERPART SIGNATURE PAGE

TO REGISTRATION RIGHTS AGREEMENT,

DATED DECEMBER __, 2006,

AMONG USTELEMATICS, INC. AND

THE “HOLDERS” IDENTIFIED THEREIN

The undersigned hereby executes and delivers the Registration Rights Agreement to which this Signature Page is attached, which, together with all counterparts of the Registration Rights Agreement and Signature Pages of the Company and other “Holders” under the Registration Rights Agreement, shall constitute one and the same document in accordance with the terms of the Registration Rights Agreement.



	HOLDER:
	By:
		Name:
		Title:

EX-10.4 9 v060325_ex10-4.htm

Exhibit 10.4

Exhibit D

AMENDED AND RESTATED SECURITY AGREEMENT

1. Identification.

This Amended and Restated Security Agreement (the “Agreement”), dated as of December 7, 2006, is entered into by and between USTelematics, Inc., a Delaware corporation (“Parent”), the Subsidiaries of the Parent identified on Annex I hereto (each, a “Guarantor” and, together with Parent, each, a “Debtor” and, collectively, the “Debtors”), and Axiom Capital Management, Inc., as collateral agent acting in the manner and to the extent described in the Collateral Agent Agreement defined below (the “Collateral Agent”), for the benefit of the parties identified on Schedule A hereto (collectively, the “Lenders”). This Agreement amends and restates in its entirety the Security Agreement dated as of April 14, 2006 by and between the Debtors and the Collateral Agent for the benefit of the Lenders identified therein.

2. Recitals.

2.1 The Lenders have made, are making and will be making loans to Parent (the “Loans”). It is beneficial to each Debtor that the Loans were made and are being made.

2.2 The Loans are and will be evidenced by certain convertible debentures (each a “Debenture”) issued by Parent on or about the date of and after the date of this Agreement pursuant to a securities purchase agreement (“Securities Purchase Agreement”) to which Parent and Lenders are parties. The Debentures are further identified on Schedule A hereto and were and will be executed by Parent as “Borrower” or “Debtor” for the benefit of each Lender as the “Holder” or “Lender” thereof. Schedule A hereto may be amended to include such other Lenders who become parties hereto and sign this Agreement, the Collateral Agent Agreement and any other agreement reasonably requested by the Collateral Agent, who will have purchased Debentures pursuant to the Securities Purchase Agreement.

2.3 In consideration of the Loans made and to be made by Lenders to Parent and for other good and valuable consideration, and as security for the performance by Parent of its obligations under the Debentures and as security for the repayment of the Loans and all other sums due from Debtors to Lenders arising under the Transaction Documents (as defined in the Securities Purchase Agreement), and any other agreement between or among them (collectively, the “Obligations”), each Debtor, for good and valuable consideration, receipt of which is acknowledged, has agreed to grant to the Collateral Agent, for the benefit of the Lenders, a security interest in the Collateral (as such term is hereinafter defined), on the terms and conditions hereinafter set forth.

2.4 The Lenders have appointed Axiom Capital Management, Inc. as Collateral Agent pursuant to that certain Collateral Agent Agreement dated at or about December 6, 2006, 2006 (“Collateral Agent Agreement”), among the Lenders and Collateral Agent.

2.5 The following defined terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles, Instruments, Inventory and Proceeds.

3. Grant of General Security Interest in Collateral.

3.1 As security for the Obligations of Debtors, each Debtor hereby grants the Collateral Agent, for the benefit of the Lenders, a security interest in the Collateral.

3.2 “Collateral” shall mean all of the following property of Debtors:

(A) All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of all Accounts, Goods, real or personal property, all present and future books and records relating to the foregoing and all products and Proceeds of the foregoing, and as set forth below:

(i) All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of all: Accounts, interests in goods represented by Accounts, returned, reclaimed or repossessed goods with respect thereto and rights as an unpaid vendor; contract rights; Chattel Paper; investment property; General Intangibles (including but not limited to, tax and duty claims and refunds, registered and unregistered patents, trademarks, service marks, certificates, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims, and existing and future leasehold interests in equipment, real estate and fixtures); Documents; Instruments; letters of credit, bankers’ acceptances or guaranties; cash moneys, deposits; securities, bank accounts, deposit accounts, credits and other property now or hereafter owned or held in any capacity by Debtors, as well as agreements or property securing or relating to any of the items referred to above;

(ii) Goods: All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of goods, including, but not limited to:

(a) All Inventory, wherever located, whether now owned or hereafter acquired, of whatever kind, nature or description, including all raw materials, work-in-process, finished goods, and materials to be used or consumed in Debtors’ business; finished goods, timber cut or to be cut, oil, gas, hydrocarbons, and minerals extracted or to be extracted, and all names or marks affixed to or to be affixed thereto for purposes of selling same by the seller, manufacturer, lessor or licensor thereof and all Inventory which may be returned to any Debtor by its customers or repossessed by any Debtor and all of Debtors’ right, title and interest in and to the foregoing (including all of a Debtor’s rights as a seller of goods);

(b) All Equipment and fixtures, wherever located, whether now owned or hereafter acquired, including, without limitation, all machinery, furniture and fixtures, and any and all additions, substitutions, replacements (including spare parts), and accessions thereof and thereto (including, but not limited to Debtors’ rights to acquire any of the foregoing, whether by exercise of a purchase option or otherwise);

(iii) Property: All now owned and hereafter acquired right, title and interests of Debtors in, to and in respect of any other personal property in or upon which a Debtor has or may hereafter have a security interest, lien or right of setoff;

(iv) Books and Records: All present and future books and records relating to any of the above including, without limitation, all computer programs, printed output and computer readable data in the possession or control of the Debtors, any computer service bureau or other third party; and

(v) Products and Proceeds: All products and Proceeds of the foregoing in whatever form and wherever located, including, without limitation, all insurance proceeds and all claims against third parties for loss or destruction of or damage to any of the foregoing.

(B) All now owned and hereafter acquired right, title and interest of Debtors in, to and in respect of the following:

(i) the shares of stock, partnership interests, member interests or other equity interests at any time and from time to time acquired by Debtors of any and all entities now or hereafter existing, (such entities, being hereinafter referred to collectively as the “Pledged Issuers” and individually as a “Pledged Issuer”), the certificates representing such shares, partnership interests, member interests or other interests, all options and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, partnership interests, member interests or other interests;

(ii) all additional shares of stock, partnership interests, member interests or other equity interests from time to time acquired by Debtors, of any Pledged Issuer, the certificates representing such additional shares, all options and other rights, contractual or otherwise, in respect thereof and all dividends, distributions, cash, instruments, investment property and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, interests or equity; and

(iii) all security entitlements of Debtors in, and all Proceeds of any and all of the foregoing in each case, whether now owned or hereafter acquired by a Debtor and howsoever its interest therein may arise or appear (whether by ownership, security interest, lien, claim or otherwise).

Notwithstanding anything to the contrary contained herein or any Transaction Document, Collateral shall not include any personal property which is, or at the time of a Debtor’s acquisition thereof shall be subject to a purchase money mortgage or other purchase money lien or security interest, but only to the extent of the initial dollar amount such purchase money mortgage or lien.

3.3 The Collateral Agent is hereby specifically authorized, after the Maturity Date (defined in the Debentures) accelerated or otherwise, or after an Event of Default (as defined herein) and the expiration of any applicable cure period, to transfer any Collateral into the name of the Collateral Agent and to take any and all action deemed advisable to the Collateral Agent to remove any transfer restrictions affecting the Collateral.

4. Perfection of Security Interest.

4.1 Each Debtor shall prepare, execute and deliver to the Collateral Agent UCC-1 Financing Statements. The Collateral Agent is instructed to prepare and file at each Debtor’s cost and expense, financing statements in such jurisdictions deemed advisable to the Collateral Agent, including but not limited to the State of Delaware. The Financing Statements are deemed to have been filed for the benefit of the Collateral Agent and Lenders identified on Schedule A hereto.

4.2 The Parent shall deliver to Collateral Agent promptly stock certificates representing all of the shares of outstanding capital stock of each Guarantor (the “Securities”). All such certificates shall be held by or on behalf of Collateral Agent pursuant hereto and shall be delivered in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment or undated stock powers executed in blank, all in form and substance satisfactory to Collateral Agent.

4.3 All other certificates and instruments constituting Collateral from time to time required to be pledged to Collateral Agent pursuant to the terms hereof (the “Additional Collateral”) shall be delivered to Collateral Agent promptly upon receipt thereof by or on behalf of Debtors. All such certificates and instruments shall be held by or on behalf of Collateral Agent pursuant hereto and shall be delivered in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment or undated stock powers executed in blank, all in form and substance satisfactory to Collateral Agent. If any Collateral consists of uncertificated securities, unless the immediately following sentence is applicable thereto, Debtors shall cause Collateral Agent (or its custodian, nominee or other designee) to become the registered holder thereof, or cause each issuer of such securities to agree that it will comply with instructions originated by Collateral Agent with respect to such securities without further consent by Debtors. If any Collateral consists of security entitlements, Debtors shall transfer such security entitlements to Collateral Agent (or its custodian, nominee or other designee) or cause the applicable securities intermediary to agree that it will comply with entitlement orders by Collateral Agent without further consent by Debtors.

4.4 Within five (5) days after the receipt by a Debtor of any Additional Collateral, a Pledge Amendment, duly executed by such Debtor, in substantially the form of Annex I hereto (a “Pledge Amendment”), shall be delivered to Collateral Agent in respect of the Additional Collateral to be pledged pursuant to this Agreement. Each Debtor hereby authorizes Collateral Agent to attach each Pledge Amendment to this Agreement and agrees that all certificates or instruments listed on any Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder constitute Collateral.

4.5 If a Debtor shall receive, by virtue of Debtor being or having been an owner of any Collateral, any (i) stock certificate (including, without limitation, any certificate representing a stock dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off), promissory note or other instrument, (ii) option or right, whether as an addition to, substitution for, or in exchange for, any Collateral, or otherwise, (iii) dividends payable in cash (except such dividends permitted to be retained by Debtor pursuant to Section 5.1 hereof) or in securities or other property or (iv) dividends or other distributions in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus, Debtor shall receive such stock certificate, promissory note, instrument, option, right, payment or distribution in trust for the benefit of Collateral Agent, shall segregate it from Debtor’s other property and shall deliver it forthwith to Collateral Agent, in the exact form received, with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by Collateral Agent as Collateral and as further collateral security for the Obligations.

5. Distribution.

5.1 So long as no Event of Default exists, Debtors shall be entitled to exercise all voting power and receive payments pertaining to any of the Collateral, provided such exercise is not contrary to the interests of the Lenders and does not impair the Collateral.

5.2. At any time an Event of Default exists or has occurred, all rights of Debtors, upon notice given by Collateral Agent, to exercise the voting power and receive payments, which it would otherwise be entitled to pursuant to Section 5.1, shall cease and all such rights shall thereupon become vested in Collateral Agent, which shall thereupon have the sole right to exercise such voting power and receive such payments.

5.3 All dividends, distributions, interest and other payments which are received by Debtors contrary to the provisions of Section 5.2 shall be received in trust for the benefit of Collateral Agent as security and Collateral for payment of the Obligations, shall be segregated from other funds of Debtors, and shall be forthwith paid over to Collateral Agent as Collateral in the exact form received with any necessary endorsement and/or appropriate stock powers duly executed in blank, to be held by Collateral Agent as Collateral and as further collateral security for the Obligations.

6. Further Action By Debtors; Covenants and Warranties.

6.1 Collateral Agent at all times shall have a perfected security interest in the Collateral, the Securities, and the Additional Collateral (the “Perfected Collateral”). Each Debtor has and will continue to have full title to the Collateral free from any other liens, leases, encumbrances, judgments or other claims. Collateral Agent’s security interest in the Collateral constitutes and will continue to constitute a first, prior and indefeasible security interest in favor of Collateral Agent. Each Debtor will do all acts and things, and will execute and file all instruments (including, but not limited to, security agreements, financing statements, continuation statements, etc.) reasonably requested by Collateral Agent to establish, maintain and continue the perfected security interest of Collateral Agent in the Perfected Collateral, and will promptly on demand, pay all costs and expenses of filing and recording, including the costs of any searches reasonably deemed necessary by Collateral Agent from time to time to establish and determine the validity and the continuing priority of the security interest of Collateral Agent, and also pay all other claims and charges that, in the opinion of Collateral Agent, exercised in good faith, are reasonably likely to materially prejudice, imperil or otherwise affect the Collateral or Collateral Agent’s or Lenders’ security interests therein.

6.2 Other than in the ordinary course of business, for fair value and in cash, and except for Collateral which is substituted by assets of identical or greater value (with the consent of the Collateral Agent) or which has become obsolete or is of inconsequential value, each Debtor will not sell, transfer, assign or pledge those items of Collateral (or allow any such items to be sold, transferred, assigned or pledged), without the prior written consent of Collateral Agent other than a transfer of the Collateral to a wholly-owned subsidiary or to another Debtor on prior notice to Collateral Agent, and provided the Collateral remains subject to the security interest herein described. Although Proceeds of Collateral are covered by this Agreement, this shall not be construed to mean that Collateral Agent consents to any sale of the Collateral, except as provided herein. Sales of Collateral in the ordinary course of business shall be free of the security interest of Lenders and Collateral Agent and Lenders and Collateral Agent shall promptly execute such documents (including without limitation releases and termination statements) as may be required by Debtors to evidence or effectuate the same.

6.3 Each Debtor will, at all reasonable times during regular business hours and upon reasonable notice, allow Collateral Agent or its representatives free and complete access to the Collateral and all of such Debtor’s records which in any way relate to the Collateral, for such inspection and examination as Collateral Agent reasonably deems necessary.

6.4 Each Debtor, at its sole cost and expense, will protect and defend this Security Agreement, all of the rights of Collateral Agent and Lenders hereunder, and the Collateral against the claims and demands of all other persons.

6.5 Debtors will promptly notify Collateral Agent of any levy, distraint or other seizure by legal process or otherwise of any part of the Collateral, and of any threatened or filed claims or proceedings that are reasonably likely to affect or impair any of the rights of Collateral Agent under this Security Agreement in any material respect.

6.6 Each Debtor, at its own expense, will obtain and maintain in force insurance policies covering losses or damage to those items of Collateral which constitute physical personal property, which insurance shall be of the types customarily insured against by companies in the same or similar business, similarly situated, in such amounts (with such deductible amounts) as is customary for such companies under the same or similar circumstances, similarly situated. Debtors shall make the Collateral Agent a loss payee thereon to the extent of its interest in the Collateral. Collateral Agent is hereby irrevocably (until the Obligations are paid in full) appointed each Debtor’s attorney-in-fact to endorse any check or draft that may be payable to such Debtor as proceeds of such insurance so that Collateral Agent may collect the proceeds payable for any loss under such insurance. The proceeds of such insurance, less any costs and expenses incurred or paid by Collateral Agent in the collection thereof, shall be applied either toward the cost of the repair or replacement of the items damaged or destroyed, or on account of any sums secured hereby, whether or not then due or payable.

6.7 Collateral Agent may, at its option, and without any obligation to do so, pay, perform and discharge any and all amounts, costs, expenses and liabilities herein agreed to be paid or performed by Debtor. Upon Debtor’s failure to do so, all amounts expended by Collateral Agent in so doing shall become part of the Obligations secured hereby, and shall be immediately due and payable by Debtor to Collateral Agent upon demand and shall bear interest at the lesser of 15% per annum or the highest legal amount from the dates of such expenditures until paid.

6.8 Upon the request of Collateral Agent, Debtors will furnish to Collateral Agent within five (5) business days thereafter, or to any proposed assignee of this Security Agreement, a written statement in form reasonably satisfactory to Collateral Agent, duly acknowledged, certifying the amount of the principal and interest and any other sum then owing under the Obligations, whether to its knowledge any claims, offsets or defenses exist against the Obligations or against this Security Agreement, or any of the terms and provisions of any other agreement of Debtors securing the Obligations. In connection with any assignment by Collateral Agent of this Security Agreement, each Debtor hereby agrees to cause the insurance policies required hereby to be carried by such Debtor, if any, to be endorsed in form satisfactory to Collateral Agent or to such assignee, with loss payable clauses in favor of such assignee, and to cause such endorsements to be delivered to Collateral Agent within ten (10) calendar days after request therefor by Collateral Agent.

6.9 Each Debtor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other reasonable assurances or instruments and take further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require to perfect its security interest hereunder.

6.10 Debtors represent and warrant that they are the true and lawful exclusive owners of the Collateral, free and clear of any liens and encumbrances.

6.11 Each Debtor hereby agrees not to divest itself of any right under the Collateral except as permitted herein absent prior written approval of the Collateral Agent, except to a subsidiary organized and located in the United States on prior notice to Collateral Agent provided the Collateral remains subject to the security interest herein described.

6.12 Each Debtor shall cause each Subsidiary of such Debtor in existence on the date hereof and each Subsidiary not in existence on the date hereof to execute and deliver to Collateral Agent promptly and in any event within 10 days after the formation, acquisition or change in status thereof (A) a guaranty guaranteeing the Obligations and (B) if requested by Collateral Agent, a security and pledge agreement substantially in the form of this Agreement together with (x) certificates evidencing all of the capital stock of each Subsidiary of and any entity owned by such Subsidiary, (y) undated stock powers executed in blank with signatures guaranteed, and (z) such opinion of counsel and such approving certificate of such Subsidiary as Collateral Agent may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares and (C) such other agreements, instruments, approvals, legal opinions or other documents reasonably requested by Collateral Agent in order to create, perfect, establish the first priority of or otherwise protect any lien purported to be covered by any such pledge and security agreement or otherwise to effect the intent that all property and assets of such Subsidiary shall become Collateral for the Obligations. For purposes of this Agreement, “Subsidiary” means, with respect to any entity at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity) of which more than 50% of (A) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (B) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (C) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity. Annex I annexed hereto contains a list of all Subsidiaries of the Debtors as of the date of this Agreement.

6.13 Without limiting the generality of the other obligations of the Borrower hereunder, the Borrower shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all intellectual property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Collateral Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material intellectual property.

7. Power of Attorney.

At any time an Event of Default exists or has occurred, each Debtor hereby irrevocably constitutes and appoints the Collateral Agent as the true and lawful attorney of such Debtor, with full power of substitution, in the place and stead of such Debtor and in the name of such Debtor or otherwise, at any time or times, in the discretion of the Collateral Agent, to take any action and to execute any instrument or document which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement. This power of attorney is coupled with an interest and is irrevocable until the Obligations are satisfied.

8. Performance By The Collateral Agent.

If a Debtor fails to perform any material covenant, agreement, duty or obligation of such Debtor under this Agreement, the Collateral Agent may, after any applicable cure period, at any time or times in its discretion, take action to effect performance of such obligation. All reasonable expenses of the Collateral Agent incurred in connection with the foregoing authorization shall be payable by Debtors as provided in Paragraph 12.1 hereof. No discretionary right, remedy or power granted to the Collateral Agent under any part of this Agreement shall be deemed to impose any obligation whatsoever on the Collateral Agent with respect thereto, such rights, remedies and powers being solely for the protection of the Collateral Agent.

9. Event of Default.

An event of default (“Event of Default”) shall be deemed to have occurred hereunder upon the occurrence of any event of default as defined and described in this Agreement, in the Debentures, the Securities Purchase Agreement, and any other agreement to which Debtor and a Lender are parties. Upon and after any Event of Default, after the applicable cure period, if any, any or all of the Obligations shall become immediately due and payable at the option of the Collateral Agent, for the benefit of the Lenders, and the Collateral Agent may dispose of Collateral as provided below. A default by Debtor of any of its material obligations pursuant to this Agreement and any of the Transaction Documents (as defined in the Securities Purchase Agreement) shall be an Event of Default hereunder and an “Event of Default” as defined in the Debentures, and Securities Purchase Agreement.

10. Disposition of Collateral.

Upon and after any Event of Default which is then continuing,

10.1 The Collateral Agent may exercise its rights with respect to each and every component of the Collateral, without regard to the existence of any other security or source of payment for the Obligations. In addition to other rights and remedies provided for herein or otherwise available to it, the Collateral Agent shall have all of the rights and remedies of a lender on default under the Uniform Commercial Code then in effect in the State of New York.

10.2 If any notice to Debtors of the sale or other disposition of Collateral is required by then applicable law, five business (5) days prior written notice (which Debtors agree is reasonable notice within the meaning of Section 9.612(a) of the Uniform Commercial Code) shall be given to Debtors of the time and place of any sale of Collateral which Debtors hereby agree may be by private sale. The rights granted in this Section are in addition to any and all rights available to Collateral Agent under the Uniform Commercial Code.

10.3 The Collateral Agent is authorized, at any such sale, if the Collateral Agent deems it advisable to do so, in order to comply with any applicable securities laws, to restrict the prospective bidders or purchasers to persons who will represent and agree, among other things, that they are purchasing the Collateral for their own account for investment, and not with a view to the distribution or resale thereof, or otherwise to restrict such sale in such other manner as the Collateral Agent deems advisable to ensure such compliance. Sales made subject to such restrictions shall be deemed to have been made in a commercially reasonable manner.

10.4 All proceeds received by the Collateral Agent for the benefit of the Lenders in respect of any sale, collection or other enforcement or disposition of Collateral, shall be applied (after deduction of any amounts payable to the Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations pro rata among the Lenders in proportion to their interests in the Obligations. Upon payment in full of all Obligations, Debtors shall be entitled to the return of all Collateral, including cash, which has not been used or applied toward the payment of Obligations or used or applied to any and all costs or expenses of the Collateral Agent incurred in connection with the liquidation of the Collateral (unless another person is legally entitled thereto). Any assignment of Collateral by the Collateral Agent to Debtors shall be without representation or warranty of any nature whatsoever and wholly without recourse. To the extent allowed by law, each Lender may purchase the Collateral and pay for such purchase by offsetting up to such Lender’s pro rata portion of the purchase price with sums owed to such Lender by Debtors arising under the Obligations or any other source.

11. Waiver of Automatic Stay. Debtor acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against Debtor, or if any of the Collateral should become the subject of any bankruptcy or insolvency proceeding, then the Collateral Agent should be entitled to, among other relief to which the Collateral Agent or Lenders may be entitled under the Debentures, Securities Purchase Agreement and any other agreement to which the Debtor, Lenders or Collateral Agent are parties, (collectively “Loan Documents”) and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral Agent to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. DEBTOR EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, DEBTOR EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. Debtor hereby consents to any motion for relief from stay which may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding initiated by or against Debtor, and further agrees not to file any opposition to any motion for relief from stay filed by the Collateral Agent. Debtor represents, acknowledges and agrees that this provision is a specific and material aspect of this Agreement, and that the Collateral Agent would not agree to the terms of this Agreement if this waiver were not a part of this Agreement. Debtor further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Collateral Agent nor any person acting on behalf of the Collateral Agent has made any representations to induce this waiver, that Debtor has been represented (or has had the opportunity to be represented) in the signing of this Agreement and in the making of this waiver by independent legal counsel selected by Debtor and that Debtor has had the opportunity to discuss this waiver with counsel. Debtor further agrees that any bankruptcy or insolvency proceeding initiated by Debtor will only be brought in the Federal Court within the Southern District of New York.

12. Miscellaneous.

12.1 Expenses. Debtors shall pay to the Collateral Agent, on demand, the amount of any and all reasonable expenses, including, without limitation, attorneys’ fees, legal expenses and brokers’ fees, which the Collateral Agent may incur in connection with (a) sale, collection or other enforcement or disposition of Collateral; (b) exercise or enforcement of any of the rights, remedies or powers of the Collateral Agent hereunder or with respect to any or all of the Obligations upon breach or threatened breach; or (c) failure by Debtors to perform and observe any agreements of Debtors contained herein which are performed by the Collateral Agent.

12.2 Waivers, Amendment and Remedies. No course of dealing by the Collateral Agent and no failure by the Collateral Agent to exercise, or delay by the Collateral Agent in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, remedy or power of the Collateral Agent. No amendment, modification or waiver of any provision of this Agreement and no consent to any departure by Debtors therefrom, shall, in any event, be effective unless contained in a writing signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The rights, remedies and powers of the Collateral Agent, not only hereunder, but also under any instruments and agreements evidencing or securing the Obligations and under applicable law are cumulative, and may be exercised by the Collateral Agent from time to time in such order as the Collateral Agent may elect.

12.3 Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being faxed (provided that a copy is delivered by first class mail) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section:

To Debtors:	USTelematics, Inc.
	335 Richert Drive
	Wood Dale, IL 60191
	Attn: Howard Leventhal, CEO & President
	Fax: (312) 896-9235

With a copy by telecopier
only to:	Alan W. Peryam, LLC
	1120 Lincoln Street, Suite 1000
	Denver, CO 80203
	Fax: (303) 866-0999

To Lenders:	To the addresses and telecopier numbers set forth
	on Schedule A

To the Collateral Agent:	Axiom Capital Management, Inc.
	________________________________
	________________________________
	________________________________

Any party may change its address by written notice in accordance with this paragraph.

12.4 Term; Binding Effect. This Agreement shall (a) remain in full force and effect until payment and satisfaction in full of all of the Obligations; (b) be binding upon each Debtor, and its successors and permitted assigns; and (c) inure to the benefit of the Collateral Agent, for the benefit of the Lenders and their respective successors and assigns.

12.5 Captions. The captions of Paragraphs, Articles and Sections in this Agreement have been included for convenience of reference only, and shall not define or limit the provisions hereof and have no legal or other significance whatsoever.

12.6 Governing Law; Venue; Severability. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction, except to the extent that the perfection of the security interest granted hereby in respect of any item of Collateral may be governed by the law of another jurisdiction. Any legal action or proceeding against a Debtor with respect to this Agreement may be brought in the courts in the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Debtor hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Debtor hereby irrevocably waives any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the aforesaid courts and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. If any provision of this Agreement, or the application thereof to any person or circumstance, is held invalid, such invalidity shall not affect any other provisions which can be given effect without the invalid provision or application, and to this end the provisions hereof shall be severable and the remaining, valid provisions shall remain of full force and effect.

12.7 Entire Agreement. This Agreement contains the entire agreement of the parties and supersedes all other agreements and understandings, oral or written, with respect to the matters contained herein.

12.8 Counterparts/Execution. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile signature and delivered by facsimile transmission.

13. Intercreditor Terms. As between the Lenders, any distribution under paragraph 10.4 shall be made proportionately based upon the remaining principal amount (plus accrued and unpaid interest) to each as to the total amount then owed to the Lenders as a whole. The rights of each Lender hereunder are pari passu to the rights of the other Lenders hereunder. Any recovery hereunder shall be shared ratably among the Lenders according to the then remaining principal amount owed to each (plus accrued and unpaid interest) as to the total amount then owed to the Lenders as a whole.

14. Termination; Release. When the Obligations have been indefeasibly paid and performed in full or all outstanding Debentures have been converted to common stock pursuant to the terms of the Debentures and the Securities Purchase Agreements, this Agreement shall terminate, and the Collateral Agent, at the request and sole expense of the Debtors, will execute and deliver to the Debtors the proper instruments (including UCC termination statements) acknowledging the termination of the Security Agreement, and duly assign, transfer and deliver to the Debtors, without recourse, representation or warranty of any kind whatsoever, such of the Collateral, including, without limitation, Securities and any Additional Collateral, as may be in the possession of the Collateral Agent.

15. Collateral Agent.

15.1 Collateral Agent Powers. The powers conferred on the Collateral Agent hereunder are solely to protect its interest (on behalf of the Lenders) in the Collateral and shall not impose any duty on it to exercise any such powers.

15.2 Reasonable Care. The Collateral Agent is required to exercise reasonable care in the custody and preservation of any Collateral in its possession; provided, however, that the Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral if it takes such action for that purposes as any owner thereof reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Collateral Agent, to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care.

[THIS SPACE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the undersigned have executed and delivered this Security Agreement, as of the date first written above.

“DEBTOR”			“THE COLLATERAL AGENT”
USTELEMATICS, INC. a Delaware corporation			Axiom Capital Management, Inc.
By:			By:
Its:			Its:

“SUBSIDIARY”			“SUBSIDIARY”
By:			By:
Its:			Its:

APPROVED BY “LENDERS”:

This Security Agreement may be signed by facsimile signature and

delivered by confirmed facsimile transmission.

SCHEDULE A TO SECURITY AGREEMENT

LENDER		PRINCIPAL AMOUNT OF DEBENTURE





TOTALS

ANNEX I

SECURITY AGREEMENT

PLEDGE AMENDMENT

This Pledge Amendment, dated December __ 2006, is delivered pursuant to Section 4.3 of the Amended and Restated Security Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Amended and Restated Security Agreement, dated December ___, 2006, as it may heretofore have been or hereafter may be amended, restated, supplemented or otherwise modified from time to time and that the shares listed on this Pledge Amendment shall be hereby pledged and assigned to Collateral Agent and become part of the Collateral referred to in such Security Agreement and shall secure all of the Obligations referred to in such Security Agreement.

NAME OF ISSUER	JURISDICTION OF INCORPORATION	PERCENT OWNED BY PARENT	NUMBER OF SHARES	CLASS	CERTIFICATE NUMBER(S)


	USTELEMATICS, INC.

	By:
		Howard E. Leventhal Chief Executive Officer, President

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